Labour luck holds on jobs and loan rate

The golden economic backdrop against which Gordon Brown is delivering his sixth Budget today was highlighted by new figures showing unemployment at its lowest for more than 25 years, the public finances in good shape and no urgency at the Bank of England to start raising interest rates.

As the nation braced itself for Budget tax increases to pay for better public services, the figures confirm the economy is well placed to cope with them.

Unemployment dropped by another 6,000 in March, taking the jobless total to 939,600 - the lowest since October 1975. Despite swingeing job cuts in industry, the buoyant service sector, which accounts for about 70 per cent of the economy, is continuing to recruit.

There is a danger that low unemployment could push up wages, as firms have to pay more to attract extra staff. But there is no evidence that this is happening, boding well for continuing low inflation.

Average earnings in the three months to February were just 1.9 per cent higher than a year ago - the lowest rate of increase since records began in 1991. Some of the weakness was attributed to lower City bonuses than a year ago, but the underlying picture is one of modest income gains.

Economists said this should help take some of the steam out of the consumer boom, something that must happen if interest rates are to stay low. The Bank of England elected to keep rates at four per cent this month and the minutes of the meeting, published today, showed the nine-strong monetary policy committee was unanimous over the decision.

The committee was upbeat about the economic outlook, stating that the recovery was under way, investor confidence was improvingand forecasts for growth this year were being revised upwards. Meanwhile, separate figures showed the Government borrowed less than expected last year. The Treasury's coffers ended the financial year in the red to the tune of £1.3 billion, half the £2.5 billion the Chancellor predicted in November's Pre-Budget Report.

Economist Jonathan Loynes at consultancy Capital Economics said: "Gordon Brown has been a lucky Chancellor so far in that he has presented his Budgets against favourable economic backgrounds. That looked to be under threat, but over the last month or so things have improved and the message in today's numbers is very encouraging."