High street spending spurts as unemployment slows

UNEMPLOYMENT rose much less sharply than the Treasury or the City expected last month, leaving the seasonally adjusted jobless total under 3 million, official figures will show on Thursday.

The Chancellor, Norman Lamont, is expected to use the jobless figures - together with a bounce-back in high street spending last month - to justify his argument that there is no case to cut interest rates at present. This may help take pressure off the pound, which reached a record trading low on Friday.

David Currie, one of the 'seven wise men' who advise the Chancellor, argues in today's London Business School economic outlook that 'there is room for a further cut in interest rates in the Budget', but warns rates may have to rise by the year-end if pay settlements grow too sharply.

January's increase in seasonally-adjusted unemployment was less than half that seen in the previous month, Thursday's figures will show. December's 60,800 rise shocked the City and helped trigger the announcement of the last cut in base rates to 6 per cent.

The City was expecting seasonally adjusted unemployment to have risen by 40,000 in January, to 3,013,500. Although this will prove overly pessimistic, the unadjusted jobless total will top 3 million on Thursday, rising from 2,983,339 in December.

City expectations are closer to the mark on high street spending, which will - as forecast - show a rise in January after a surprise fall in the previous month. December saw retail sales volume fall 0.7 per cent on the month, with analysts on average predicting a 0.5 per cent jump in January.

Another indication of high street spending trends will come tomorrow in the Confederation of British Industry's distributive trades survey for February.

The latest forecast from the London Business School suggests a 'convincing recovery' in the economy will get under way during the spring, thanks to an undervalued pound and the lowest interest rates for 15 years. The LBS predicts 1.4 per cent growth for 1993 as a whole, with growth returning to its trend rate of 2-2.5 per cent by the end of the year. The LBS has increased its 1993 growth forecast from 0.9 per cent in October. The other main change to the forecast is an upward revision to expected profits growth at the expense of wage increases. Profits are expected to grow between 10 and 15 per cent a year in the medium term.

The LBS warns, however, that an upward boost to pay settlements from devaluation is likely to mean interest rates will have to rise again before the year- end. It also expects a pounds 4bn tax increase in December's 'unified Budget', which will leave the Government borrowing about pounds 50bn a year at least until 1996 as debt interest payments rise. Underlying inflation - excluding mortgage interest payments - is expected to average 4 per cent in the fourth quarter, hitting the Chancellor's target ceiling. But the City was surprised on Friday to see underlying inflation drop from 3.7 to 3.2 per cent in January, while the headline figure fell to a 25-year low of 1.7 per cent.

The Bank of England will publish its first quarterly report on the Government's anti-inflationary policy tomorrow. It will make no criticism of the cuts in interest rates since Black Wednesday, but will urge caution in the future.