Inflation too high, says Pitman

Sir Brian Pitman, chief executive of Lloyds Bank, yesterday attacked government policy and claimed Britain's inflation was out of control at the current level of more than 3 per cent.

Sir Brian, not known for public outbursts, has previously praised the Government for its tough stance on inflation and has urged industry to adapt.

But yesterday, he made his support for the Bank of England's monetary policy crystal clear and left no doubt that he thinks interest rates should rise.

Attacking what he saw as the Government's laxity over rising prices, Sir Brian said: "Over the last three months, inflation has moved up to more than 3 per cent, and it is moving up, not down. We regard controlling inflation as absolutely key to our [Britain's] success. I hope everyone is absolutely committed to that.

"I certainly haven't seen quite as much action as I would have liked to keep it down."

Sir Brian said perceptions were everything, and the UK now needed a signal similar to that which Alan Greenspan, chairman of the Federal Reserve, gave in February last year when he raised interest rates by a quarter of a per cent.

"I don't like inflation above 3 per cent. It changes perceptions. You have to take action before inflation takes off," said Sir Brian. He acknowledged the Government's predicament, but stressed: "You have to take the bottle away before the party starts. You're unpopular when you do that."

A Treasury spokesman responded last night: "The Chancellor and the Governor of the Bank of England have both said repeatedly that they are committed to keeping inflation down. The Chancellor has put in place the overall framework to hit inflation targets - less than 2.5 per cent by the end of this Parliament. These targets are the basis of their monthly meetings."

Sir Brian's attack came as he unveiled a 21 per cent rise in profits to pounds 735m for the first half of the year to the end of June.

This came despite a surprise pounds 120m general provision against future losses. The provision balanced a pounds 193m one-off gain from Lloyds' sale of stakes in 3i and Standard Chartered. Lloyds shares rose 13p to 677p.

Lloyds kicked off the bank half-yearly reporting season with a bang. Sir Robin Ibbs, chairman, rejected union accusations that Lloyds' latest strategic review, Project Martini, would result in 10,000 job cuts, branding it a "scare story".

The chairman said the project would improve customer service and involved "nothing like the change" banking union Bifu had indicated.

Sir Brian Pitman added that intense competition meant staff numbers would continue to be cut, but "in a natural way, not with sudden redundancies".

Lloyds rejected a Bifu suggestion that Sir Brian stood to make pounds 1m from cashing in share options. A Lloyds spokeswoman confirmed the chief executive had 443,645 share options priced on average at pounds 3.93, compared to yesterday's closing price of 677p. He had not exercised any options yet, she said.

The spokeswoman added: "All Lloyds staff are entitled to share options. Staff receive 6.92 per cent of their basic salaries in share options or cash this year. Sir Brian became chief executive in 1983. He is a long- term shareholder. He has no directorships elsewhere. He has dedicated himself to Lloyds Bank."

Analysts generally welcomed Lloyds' results, which included a 15 per cent increase in the half year dividend to 8.6p. They questioned whether this dividend growth would be sustainable following the pounds 1.8bn purchase of Cheltenham & Gloucester, which becomes effective on Monday.