Chancellor's adviser backs case for interest rates rise

The Government yesterday gave its strongest approval for a rise in interest rates tomorrow, saying there was a "consensus" for the need for pre-emptive action.

Ed Balls, Gordon Brown's right-hand man, said economic growth was strengthening in every region of the UK. He highlighted comments at the weekend by Digby Jones, the head of the CBI, who said the country's largest employers' group "would not protest" at a rate rise.

Mr Balls told a local government conference: "As the CBI demonstrated this week, there is now a consensus - across both industry and the regions - that a forward-looking and pre-emptive approach to monetary policy ... is the best way to lock in stability and deliver balanced regional growth."

The comments helped fuel a rise in the pound, which had its biggest daily gain against the dollar in two weeks.

Mr Balls, who advised the Chancellor on the independence of the Bank of England, the tests for membership of the euro and his welfare-to-work policies, is seen by the markets as a key voice at the Treasury.

The last time he said the Treasury stood ready to back the Bank of England over its monetary policy decisions was on 31 October - six days before November's rate rise.

Stephen Lewis, the chief economist at Monument Securities, said: "When he says the Treasury supports whatever actions the Monetary Policy Committee judges it must take, the rest of us should take notice."

A large majority of City economists believe the MPC will raise rates by a quarter-point to 4 per cent when it ends its two-day meeting that begins today.

GDP growth is running at a three-year high, manufacturing has bounced out of recession and confidence among exporters is at an eight-year high.

There was further ammunition for those forecasting a rate rise from the CBI's survey of the high street yesterday, which showed a jump in sales last month.

More than half the respondents said the New Year sales were even better than a year ago, and the net balance reporting an improvement in sales was the highest in 20 months.