Irish and UK rates "to move further apart"

IRISH and British interest rates will move even further apart over the rest of this year as the economies move in different directions, Mr Jim Power, chief economist at Bank of Ireland Treasury, said yesterday.

Writing in Bank of Ireland's latest monthly bulletin, Mr Power said Irish interest rates will definitely not fall any further and could even rise be ore the end of the year.

Mr Power argues that the Central Bank could raise rates if the housing market fails to slow down. "If credit and the housing market maintain momentum over the coming months, the Central Bank will tighten policy."

On the other hand, both the British Chancellor of the Exchequer, Mr Kenneth Clarke, and the Bank of England governor, Mr Eddie George, indicated at the annual Mansion House dinner last night that further rate cuts be on the way.

Mr George stressed that inflationary pressures are currently subdued, allowing room for further cuts. He added there is a risk that the stock adjustment which has hit British manufacturing could accelerate, representing a "down side risk" in the short term.

Although Mr George declined to give any details about his meeting with Mr Clarke last week when interest rates were cut, Mr Power said it is clear that there was not much conflict between the two men. "The bias must now, be for a further rate cut", he commented.

Mr Clarke robustly defended his controversial decision to cut base rates last week, criticised as being politically motivated, and insisted he was not secretly engineering a "one year wonder, a pre election boom to restore the feel good factor".

The Chancellor's decision to cut rates last week was vindicated by jobless figures released in Britain yesterday, analysts said. The number of people claiming benefit fell by 14,800 last month to 2,167,600 - 7.7 per cent of the workforce - more than 150,000 down on a year ago. Unemployment is now 813,500 lower than the near three million peak in December 1992.

Meanwhile, the pound is continuing to rise slowly against sterling. By the close yesterday it was trading at 102.70p, up from 102.68 a day earlier. Mr Power predicts that the rate will be around 103.50p at the end of September and will remain around that level for the rest of the year.