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Friday, 29 December, 2000, 08:04 GMT US slowdown to affect UK economy

Sir Edward peers at a slowing US economy The governor of the Bank of England, Sir Edward George, has warned that the United Kingdom is likely to be affected by the economic slowdown in the United States.

Speaking on BBC Radio 4's Today programme, Sir Edward said a slowdown was to be expected after a long period of "stable growth ... and reasonable price stability".

He said the current data did not suggest anything "deeply damaging to our situation" and that it was "too soon to become seriously concerned", but warned the "biggest cloud on the horizon" would be "a sharper slowdown in the United States than we expect".

"We will see slower growth than we expected", Sir Edward said, "but it's not a nightmare scenario".

For the UK he predicted lower economic growth, but a "sustainable rate of growth".

However, Sir Edward declined to discuss the likely impact on UK interest rates. While refusing to rule out higher interest rates, he said he could not "predict lower interest rates" either.

The bank would have to "monitor the data as they come in".

Euro recovery welcome

One of the biggest worries, though, was an "imbalance" in the UK economy, he said, where some sectors were deeply affected by the strength of the pound against the euro.

Sir Edward said the current recovery of the euro was "extremely welcome", but argued that the single currency was still too weak to make it possible for the UK to join Europe's monetary union.

He repeated his long-standing position that joining the euro was ultimately a "political decision", not an economic one.

-- Rachel Gibson (rgibson@hotmail.com), December 29, 2000

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Sir Eddie warns of bleak year ahead

by Charles Reiss

The Bank of England and the TUC today joined in warning of a bleaker year ahead for the economy and for jobs - which could jolt Tony Blair's scenario for a successful spring general election.

Bank of England Governor Sir Eddie George cautioned that a slowdown in the US economy is likely to make an impact on Britain in the months ahead.

Sir Eddie said he remained hopeful that the UK would avoid a serious downturn. However, if his warning materialises it could have serious effects not only on jobs and prosperity but on the Government's hopes for another Labour landslide in the coming election.

Senior ministers have been warning privately for months that Mr Blair should go for an early poll precisely because of fears that the economic health, which has lasted throughout the Government's three and a half years in office, could be nearing an end.

Those doubts have been one key reason why Mr Blair has been expected to go for an election in the spring rather than wait until the autumn.

Fears were reinforced by a warning from TUC General Secretary John Monks that the country's manufacturing industry could lose 10,000 jobs a month in the year ahead. Mr Monks, in his New Year message, said that the decision to halt car production at the Vauxhall plant in Luton had ended a bad year for manufacturing, hit by job losses week in, week out.

And he declared that companies were now deferring or cancelling investment decisions which could mean many more lost jobs to come.

Mr Monks urged the Government to do more and be "bolder" to help firms coping with short-term problems sharpened by the strength of the pound.

Sir Eddie said, however, that a squeeze in the US could have a silver lining here because it would allow the euro to strengthen and ease the pressures caused by a high pound.

The state of the economy has been seen by all the main political contenders as a key element in the Government's hopes of a repeat of Labour's massive win in 1997.

The Tories, though, have been drawing some comfort from the US presidential victory for George W Bush, which showed the Democrats unable to hold power even against a healthy economic background.

William Hague is to promise tax cuts targeted at small businesses, savers and families in the Tory run-up to the election campaign.

In detailed plans to be unveiled over the next few weeks, the Tory leader will set out to woo the votes of those he believes have suffered worst financially under Labour.

The Tories have already identified a claimed £5.7 billion of savings in public spending to fund tax cuts, with the promise of a further £2 billion-plus to come.

Labour has countered with the charge that the spending reductions would damage health, education and other key public services.

But Chancellor Gordon Brown's hopes of being able to provide extra funding for those services without raising direct taxes will be badly hit if an economic downturn brings a slowdown in growth and a cut in revenue to the Treasury.

New figures overnight confirmed that the strong economic performance allowed businesses, large and small, to prosper in the past year, despite some high-profile shutdowns. The number of businesses going bust fell nationwide, according to the figures to just over 40,000 for the year, a drop of almost 6 per cent.

-- Rachel Gibson (rgibson@hotmail.com), December 29, 2000.