Chancellor indicates support for base rate increase

Chancellor Gordon Brown yesterday indicated his support for another increase in the Bank of England base rate.

Speaking at the annual convention of the Institute of Directors at the Royal Albert Hall, Brown said the government&#39s fundamental duty was to sustain economic stability.

He says: “We will put stability first, now and in the future. We will never make the mistakes of the late-1980s and early 1990s when monetary disciplines lapsed and were forgotten.

“At this time in the economic and political cycle, past governments have allowed either inflation to get out of control, spending to get out of control or both.”

But Liberal Democrat shadow chancellor Vince Cable says: “While Mr Brown may well use his speech to indicate that he favours an MPC decision to raise interest rates, he cannot have itboth ways.

“Having made the BoE independent, which we supported as a wise decision, he cannot now tell them what to do. The BoE has a genuine problem – their mandate does not include asset bubbles and household debt. If they do use interest rates this will simply exacerbate imbalances in the economy that have led to a stagnation in manufacturing and other industries on the one hand with a runaway consumer boom on the other.”

He adds: “The chancellor and the BoE should urgently consider how to control the volume of bank lending by requiring higher reserve levels to influence balance sheets and dampen lending ability. Brown sugar and sweet words to the Institute of Directors are all well and good, but the chancellor would do well to acknowledge his responsibilities and act to resolve these issues.”