Blair backs rate cut, say unions

AMID MOUNTING concern over redundancies in manufacturing industry, the Prime Minister has told union leaders that he wants interest rates to come down over the next few months.

In private conversations at the annual TUC conference in Blackpool, which ended yesterday, Tony Blair has made clear his conviction that the cost of borrowing should be cut next month or in November at the latest.

Mr Blair's remarks in one-to-one conversations with senior trade unionists go much further than the public pronouncements of ministers or the carefully judged remarks of Eddie George, Governor of the Bank of England, who addressed TUC delegates on Tuesday.

So far, the official indications have been that interest rates are unlikely to go higher, but there has been no hard-and-fast prediction that they would come down. Mr Blair said before he went to Blackpool that he hoped interest rates had peaked at 7.5 per cent.

The signal of a cut in rates came as the gloom over job losses continued yesterday with the announcement of more than 800 redundancies by Vickers, makers of the Challenge 2 battle tank, with the closure of its Leeds plant, and the remaining losses in Newcastle upon Tyne, an area already badly hit by redundancies.

Peter Mandelson, Secretary of State for Trade and Industry, told TUC delegates yesterday that there was "no magic fix" that could solve the problems caused by a downturn in the global economy.

Mr Blair knows he will face renewed pressure at Labour's annual conference at the end of the month for action to stave off more job losses in manufacturing. He is hoping to pull off a coup during the Tory party conference, by seeking a cut in interest rates after the next meeting of the Bank's monetary policy committee on 7-8 October.

Mr Blair's attempt to reassure union leaders came after the launch of the Alliance for Manufacturing - a joint venture involving the Amalgamated Engineering and Electrical Union and the MSF union - which accused the Government of refusing to intervene to help industry.

It is thought that the 7.5 per cent interest rate may now come down by a quarter of a percentage point in the wake of Mr Blair's remarks.

The downward shift in interest rates in the UK will be seen as part of a co-ordinated move by the world's leading industrialised countries to step back from the brink of global recession. Mr Blair could then argue that he was not using political pressure to undermine the independence of the Bank.

Downing Street denied last night that Mr Blair had promised a cut in interest rates. "The furthest he went was in saying we hoped that rates had peaked. He went no further in private than he went in public. It may be an interpretation the unions are putting on it," said a No 10 source.

The Chancellor, Gordon Brown, strongly hinted in Japan this week that he would be seeking - as the current holder of the presidency of the G7 countries - a co-ordinated reduction in interest rates to boost growth.

One City analyst said last night: "If the political pressure on the Bank to cut interest rates is too clumsy it could well backfire. But the Bank is well aware of the international context."

Although the monetary policy committee at the Bank is in charge of interest rates, it will take the Prime Minister's wishes on board.

Union leaders have warned that up to half a million jobs are at risk if the interest rate-setting committee stuck to its strict anti-inflationary strategy.