Union leader joins euro row as rate rise looms

Union leader Bill Morris, who is sceptical about the euro will confront pro-single currency colleagues and businessmen today at the Labour Party local government conference in Blackpool.

Morris is head of the 900,000-strong Transport and General Workers Union and a member of the influential Court of the Bank of England. He believes the pro-euro lobby is acting against Britain's interests by adding to uncertainty over the UK's future role in Europe.

Morris is thought to want the Government to rule out British entry to the single currency throughout the next parliament, the position already adopted by the Conservative Party.

On Monday Digby Jones, director-general of the Confederation of British Industry, said the organisation would stop campaigning for the single currency, leaving the Government to argue in its favour in public. And on Tuesday Trade and Industry Secretary Stephen Byers said the UK could join only after radical economic reform in Europe.

The euro spent the week below parity with the dollar, dipping to $0.9722 on Wednesday, and recovering to $0.9855 on Friday.

However, in an separate interview with The Observer CBI president Sir Clive Thompson said he saw no reason why Britain should not join in three years, if the Government called a referendum after the next election.

Meanwhile the strong pound looks set to continue: most City analysts expect the Bank of England's Monetary Policy Committee to raise interest rates to 6 per cent when it meets this week. David Walton of Goldman Sachs says the only question 'is whether they will raise rates by 0.25 or 0.5 of a percentage point'.

Even Roger Bootle, author of The Death of Inflation , has stated in an analysis for Deloitte & Touche that he believes 'the evidence this month will lead the MPC to announce an interest rate rise of 25 basis points'.

The MPC raised rates by 0.25 points in January, to their present level of 5.75 per cent. But this was before the Bank's quarterly inflation forecasting exercise.With oil prices strengthening and another acceleration in the growth of house prices, the inflation forecast is thought to be close to the Bank's target of 2.5 per cent.

Analysts believe that recent output data - showing an annualised 3.2 per cent rise in GDP in the fourth quarter - also point to a further rise, aimed at assuaging worries about inflation.

Chancellor Gordon Brown hinted last week that he thought rates should go up.

From the political point of view, the Government wants all the agony of rate rises out of the way this year, before a general election, which is widely expected to be called in spring next year. The obvious embarrassment is sterling, which at one stage last week hit DM3.25, compared with its unsustainable exchange rate mechanism rate of DM 2.95 in 1992.

Bank Governor Eddie George recently repeated the MPC's view that, despite the damage being done to industry by high interest rates - Ford is the latest company to complain - the committee cannot put 'the economy as a whole at significant risk of rising inflation'.

The fact that both the US Federal Reserve and the European Central Bank raised their rates last week, however, means that a quarter-point rise in UK rates will not widen the previous interest rate differential.