Clarke bows to Bank and delays rate cut

WASHINGTON - Kenneth Clarke, the Chancellor, yesterday put a further cut in base rates on hold, writes Peter Torday. He backed away from confrontation on the issue with the Bank of England and told fellow Group of Seven finance ministers he was extremely encouraged about the UK economic outlook.

Speaking at the conclusion of the G7 talks last night, Mr Clarke said: 'The International Monetary Fund agreed with me that the outlook in Britain is extremely encouraging.' Britain was 'well on the way' to achieving the Treasury's forecast of a 2.5 per cent expansion rate this year and he believed the UK could sustain that rate of expansion with low inflation 'for some years to come'.

Hinting that a further rate cut may not be needed, at least for now, the Chancellor added that the economy was 'well on course at the moment' based on latest figures showing rising high street sales, robust factory output and shrinking joblessness.

With the case for a fresh base rate cut receding, Mr Clarke joined other G7 ministers in declaring the world economy firmly on the mend. 'There is more optimism about the overall situation than at any time in 1993,' he said.

Meanwhile, Theo Waigel, the German Finance Minister, took issue with outside predictions of persisting recession, saying Germany would grow by 1.5 per cent this year. The east German economy, underpinned by heavy investment, would enjoy double-digit growth, he said.

A brighter than expected outlook for continental Europe thus joins a robust United States economic performance, with top US officials predicting growth of at least 3 per cent in 1994.

Russia needs more money, page 27

Germany's economic thaw, page 29