CITY AND SUBURBAN
Budget prospect: the Tory sheep look up and are not fed
CHRISTOPHER FI LDES
The Tories' fortunes fall as mortgage rates rise. The two go together, the cor- relation is established and you can draw a graph to show it, with the Conservative share of the polls plotted upside down and the mortgage rate wiggling around it like a friendly worm. Nothing matters more closely to the party faithful, or, for that matter, to the party agnostics and the party heretics. They face a by-election in what was a safe seat, the local elections come next, the polls and the mortgage rates are predicting a wipe-out, and on Tuesday the faithful and doubtful will unite in looking up to John Major and ask for a sign — but no sign shall be given unto them. That is their own look-out. It is their loss of nerve which has spread to the sterling money markets. They have become political mar- kets, and their perceptions are not the same as those of disgruntled occupants of the back benches. To the overseas inves- tor, as I was saying last week, Mrs Thatch- er has been the talisman of his success in the 1980s, and it is no use telling him that if she were pushed over Westminster Bridge he would do even better. (I enjoyed the tale of the Far Eastern foreign exchange dealers who saw television pictures of the poll-tax riots in Hackney town hall, and sold in the belief that this was the sacking of the Prime Minister's palace.) The mar- kets will not be gruntled until the gov- erning party is gruntled. Meanwhile, there is not the smallest chance of that familiar spoonful of synthetic syrup, a cut in in- terest rates to coincide with the Budget. The pressure is all the other way. I expect Mr Major to resist that pressure if he possibly can — first because of the political limits to his freedom of action, then because his political difficulties need poli- tical rather than financial solutions, but most of all because even higher interest rates are not now what he needs. They are high enough to do his work. The cash squeeze, already enfolding companies, is now gripping their personal customers through the slow but deadly agency of the mortgage rate. Five pounds out of every six that you and I borrow are borrowed on mortgage. These are the borrowings that fuelled house prices and went on to fuel spending. The inflation which now. threatens Mr Major with a monthly figure of 81/2 to 9 per cent is, in essence, house inflation and, though he would be a brave man to tell his party so on Tuesday, he is just now beginning to get on top of it.
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