Brown: I'll back Bank over rates

The chancellor, Gordon Brown, today said he would support the Bank of England should it decide to raise interest rates to dampen inflationary pressures in the rest of the economy.

He told BBC Radio 4's Today programme: "It is true to say that we have got rising consumer demand as a whole in our economy and we have got a strengthening world economy and that is against a background of historically low interest rates.

"I would support the Bank of England in any of the difficult decisions it has got to make over the next few months, but you have got to take a long-term view of these things as well as a short-term view."

In an earlier interview with the Financial Times ahead of his annual Mansion House speech, the chancellor spoke of the "difficult decisions" facing the Bank's nine-strong monetary policy committee.

"With this strengthening global recovery and domestic consumer demand already strong, against a background of historically low interest rates, the Bank will have tough choices to make in the coming months to ensure sustainable growth and the maintenance of stability," he said.

The Bank slashed rates to a 40-year low of 4% last year, to insulate Britain from the post-September 11 global slowdown. Lower rates kept consumers spending and the economy afloat, but also triggered a rush on cheap mortgage deals.

With the summer house-buying season only just getting under way, the overheating property market has already prompted alarm in the City. Earlier this week, mortgage lenders urged the Bank to raise rates to prevent a repeat of the boom-bust cycle of the early 1990s that left millions trapped in negative equity.

Mr Brown appeared to hint that the government would prefer the Bank to take preemptive action to avoid having to raise rates more drastically later should the housing market keep on rising.

"By prompt action and early action in the past the Bank has avoided the risk of stop-go instabilities," he said. "We will, as a government, continue to back the Bank in the difficult decisions that they have to make."

Reacting to today's slump in the stock market and following the revelations about the US communications company, WorldCom, Mr Brown said the auditing review set up in the wake of the Enron scandal last year would protect British firms.

He added: "Of course, when cases like Enron and indeed, now, WorldCom arrive, you have got to tackle these issues and deal with them and you have got to ask yourself, are you putting in place the right forms of auditing, the right forms of regulation and the right forms for dealing with stability issues.

"More has got to be done, obviously, as a result of what we learn, but these reviews have been set up immediately after Enron, to look at these issues in the United Kingdom."

As Mr Brown makes his speech today he will also be aware of a clamour of angry noises from industry leaders who yesterday warned that relations between the government and business have sunk to their lowest point for several years.

Digby Jones, the director general of the CBI, said he had never known the current level of "mistrust and fed-upness" with the government in the 30 months since he took over from Adair Turner, a New Labour fan and favourite.

His comments came the day after the CBI president, Sir John Egan, assailed ministers for piling taxes on to employers and treating them as "voteless cows to be milked".

In his interview with the FT, the chancellor also insisted that the government would not be rushed into an early referendum on joining the euro by the recent falls in the pound.