'Wise men' split on rate cuts: Chancellor's team of seven independent advisers is divided over whether to act now or wait and see

THE Chancellor's 'seven wise men' are split over future economic policy.

Two of the top advisers told the Independent on Sunday that Norman Lamont should cut interest rates now, while four agreed with the Treasury's view that he should wait to assess the impact of recent cuts and the fall in the pound.

The seventh member of the new panel of independent economic forecasters, Professor David Currie of the London Business School, said he did not want to give a public view about policy at this stage. However, he is understood to advocate caution.

Despite their considerable ideological differences, the Keynesian Professor Wynne Godley, of Cambridge University, and the monetarist Professor Patrick Minford, of Liverpool University, both called for further cuts in base rates.

Professor Minford said the economy might be poised to recover, but the risk of slump merited 'further sharp cuts'. Professor Godley also advocated cuts, but said it was 'really important to get our trading partners to expand together'.

Professor Tim Congdon, of Lombard Street Research, said: 'I am not particularly keen to have lower interest rates for the time being.' The well known monetarist said there would be a clearer idea in January or February of the full impact of the relaxation in policy.

Gavyn Davies, chief economist of Goldman Sachs and Monday columnist in the Independent, said he thought 'the next move in rates ought to be down, but I would rather wait a month or two for more information before moving. We have already had a large easing and its effects are not yet clear.'

Andrew Sentance, of the Confederation of British Industry, said base rates could probably be cut by a further percentage point to 6 per cent, without too adverse an effect on the pound. He said rates should be cut if inflationary pressure remained weak, but there 'was some virtue in waiting and seeing'.

Similar caution was recommended by Andrew Britton, director of the National Institute for Economic and Social Research, who noted that the consensus of most independent forecasters was that underlying inflation would clearly breach the Chancellor's 4 per cent target ceiling by the end of next year. But he added that a stronger pound would make it easier to cut rates.

The pound may benefit this week if renewed turmoil erupts in the European exchange rate mechanism as the markets pick over the conclusions of this weekend's European Community summit in Edinburgh.

The French franc, the Irish punt and the Danish kroner could all come under attack despite the approach of Christmas, a period in which trading usually winds down. 'Major players no longer care that Christmas is coming,' said John Hall of Swiss Bank Corp. 'They can't afford to miss any action.'

French officials have let it be known they are ready to raise interest rates if the attack on the franc resumes. They have also secured the guarantee of the Bundesbank to defend the franc as vigorously as it did last September if the need arises.

But most analysts expect the franc to survive until the new year, when heavy pressure is expected to resume. The same cannot be said of the Irish punt. Simon Briscoe, of Midland Montagu, said: 'The punt could go by Christmas, but the franc could survive until the new year. Then there is going to be a vast amount of pressure.'

The Banque de France and the Bundesbank combined to defend the franc-mark parity - the most important currency link in the ERM - with heavy intervention last Friday. The French currency ended at Fr3.4170 to the mark after briefly slipping below Fr3.42.

But few analysts believe the authorities can afford to let the franc slip to its Fr3.4305 ERM floor. Britain's experience last September proved that once a currency has fallen to the floor, the markets regard speculation against it as a one-way bet.

Economic statistics due this week are likely to provide mixed signals about the state of the British economy.

The City is looking for further evidence of rising high street spending, but a fall in factory output and an accelerated rise in unemployment.

Manufacturing production is thought to have fallen by 0.1 per cent by October, with a similar fall in the energy and water industries. Thursday's unemployment figures are also expected to be gloomy, with the monthly increase rising by nearly half to 35,000 in November.

Retail sales volume for November is expected to be 0.2 per cent up on the preceding month, continuing the gradual improvement since the spring.