Call for rate cut rejected

KENNETH CLARKE is expected to hold out against demands for an early cut in interest rates, even if tomorrow's quarterly survey of manufacturers by the Confederation of British Industry backs the view of the British Chambers of Commerce that recovery is petering out.

City economists believe the Chancellor is keeping the next cut in rates in reserve until tax increases hit people's payslips in April. A Gallup survey of consumers for the European Commission last week found no evidence that the prospect of higher taxes has damaged people's confidence, but Inland Revenue offices were inundated last week as people questioned their new tax codings. The sterling futures market suggests that the next move in rates is more likely to be down than up, but that a half-point cut by March is not a foregone conclusion.

The CBI survey is expected to show a fourth consecutive quarterly deterioration in optimism about export prospects, reflecting greater concern about the strength of the pound and about the strength of overseas markets for British goods. But the survey's findings have painted a much more erratic picture of the recovery over the past two years than official figures. 'Overall, we would expect the general tone of the survey to point in the direction of sustained recovery,' said Darren Winder, economist at Warburg Securities. He added that while the survey was good at identifying the economy's turning points 'the range of positive balances consistent with an expanding economy is quite wide'.

The Central Statistical Office published figures on Friday showing that the recovery had accelerated slightly late last year, but was neither accelerating nor decelerating if the volatile North Sea oil and gas sector was excluded. The economy grew by 2 per cent between 1992 and 1993.