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Brown bites bullet over home rates.

New Chancellor Gordon Brown grasped the nettle yesterday and put up interest rates by 0.25 per cent.

The hike was passed straight on to mortgage holders by the Halifax and Abbey National, with other big lenders set to follow suit.

Dunfermline East MP Brown said the move showed he would "not shrink from tough decisions".

Then he made the boldest bid in half a century to rid Britain of "boom and bust" by GIVING UP his power to set rates in future.

From now on, the Bank of England will decide how much borrowers pay and savers earn.

City experts were stunned by the speed of the shake-up, but still delighted.

They reckon rates will now be set for the long-term good of the country, not to buy votes for the ruling party.

And they believe it will make sure inflation is licked for good.

Shares rocketed 70 points, to an all-time high of 4525.6, after Brown's announcement.

Tim Congdon, of Lombard Street Research, said: "If these reforms had come 18 years ago we would not have had the boom-bust cycle we did.

"This has to make another boom-bust less likely."

Kate Barker, chief economic adviser to bosses' organisation the CBI, said interest rates would fall in the long term as policy becomes "more credible".

Leading economist Roger Bootle said Brown had also made a clever political move.

He explained: "If Labour backbenchers call for huge public spending rises, Brown will be able to say he can't do it because it would mean high interest rates and the rates are out of his control.

"Politically, it is very smart."

But Brown hasn't given up all control. He'll still decide the inflation targets, which have a massive influence on interest rates.

And he'll appoint four of the nine-strong Bank committee which will set rates.

The shake-up is the most radical to hit the Bank of England in its 305- year history.

Britain is now closer to economic giants America and Germany, where interest rates are set by central banks.

Most of our Euro partners also have independent banks.

Brown believes yesterday's interest rate rise will help curb inflation, which was creeping up under the Tories.

He said: "This Government will provide a modern, lasting framework for prosperity."

Former Chancellor Kenneth Clarke, widely criticised in the City for not raising rates before the election, said: "I wouldn't have made this rise. Nothing has changed since I last decided not to."

The Halifax has raised rates by 0.35 per cent, and the Abbey by 0.31 per cent.

Some in the City said the rise was overdue, and could have been as high as 0.5 per cent.

But Lex Gold, director of the Scottish Chambers of Commerce, said: "This is a healthy step to keep inflation at bay. A quarter of a per cent is about right."

A spokesman for the Scottish Building Societies Association said the housing market wouldn't be badly hit by the rise.
COPYRIGHT 1997 Scottish Daily Record & Sunday
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1997 Gale, Cengage Learning. All rights reserved.

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Author:Murphy, Brendan
Publication:Daily Record (Glasgow, Scotland)
Date:May 7, 1997
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