April 28 (Bloomberg) -- U.K. Chancellor of the Exchequer Gordon Brown signaled his approval for a Bank of England rate rise, saying policy makers won't repeat the mistakes of the 1980s by setting aside ``monetary discipline.''

``I can assure you that we will put stability first, now and in the future and that we will never make the mistakes of the late 80s and early 90s when monetary disciplines lapsed and were forgotten,'' Brown said in a speech to business leaders at the Institute of Directors conference in London today.

Policy makers should act to prevent inflation from getting out of control, he said. The speech didn't mention concerns of economists including David Walton at Goldman Sachs Group Inc. and Roger Bootle at Capital Economics Ltd. that low interest rates may have pushed consumers to borrow and spend too much, driving up house prices more quickly than the inflation rate.

Separately, Brown announced plans for a conference with business leaders in Washington on May 24 about how to spur enterprise in the U.S. and British economies. That forum will be hosted by U.S. Treasury Secretary John Snow. After meeting with Snow and U.S. Federal Reserve Board Chairman Alan Greenspan in Washington last weekend, Brown said he's confident about the prospects for the Britain and the world economy this year.

View on Economy

``Britain is not only well-placed to be the success story of the new global economy but determined that nothing will stand in the way of that achievement,'' Brown said.

All except three of the 41 economists surveyed by Bloomberg News last week expect the central bank to lift interest rates on May 6. Policy makers have increased their key rate to 4 percent from a 48-year low of 3.5 percent in two moves since November.

Interest-rate futures suggest traders and investors expect a rate increase in coming months. The three-month contract due in June was trading at 4.54 percent at 4:40 p.m. in London, compared with the current money-market rate of 4.42 percent.

``I can assure you that Tony Blair and I will put stability first now and in the future -- supporting our monetary authorities in the difficult choices they have to make and entrenching, not relaxing, our fiscal discipline,'' Brown said.

Marian Bell, the only member of the Bank of England's rate- setting Monetary Policy Committee to vote against a rate increase in November, also suggested rates are likely to rise.

Bell's Comment

``The U.K. economy has been able to grow far stronger over the recent past without triggering inflation,'' Bell said in an interview with the Financial Times. ``The amount of spare capacity we had was being eroded quite rapidly.''

House prices rose 15 percent last year and 25 percent in 2002, the most since 1989, according to HBOS Plc, the nation's biggest mortgage lender. After the last peak in house prices, inflation touched 10 percent and interest rates 15 percent.

The London-based Times newspaper reported yesterday that Brown would use his speech to insist that house prices were safe, after warnings from the International Monetary Fund and economists last week that the housing market represents a threat to the stability of the U.K., Europe's second-biggest economy.

Brown didn't mention house prices in his speech, referring instead to more broadly to the bank's role to adjust interest rates to meet an inflation target. Brown handed decision on rates to the bank from the Treasury when Blair's Labour government took office in 1997.

Brown on the Bank

``It is because we had these rules, this British model for stability -- which allowed the bank to cut interest rates aggressively during the world downturn and allows the bank to act proactively and pre-emptively during the upturn too -- that while the U.S.A., Germany, Italy and Japan suffered recessions, Britain for the first time in 50 years did not suffer a recession during the world downturn,'' Brown will say.

Britain's economy has also been kept out of recession by consumer spending, which was made possible by record levels of borrowing against homes.

The IMF, in its global economic forecast last week, said the U.K. was vulnerable to a sudden drop in housing prices. The fund also said that some highly indebted households may struggle as interest rates go up, and it called on the Bank of England to continue to increase borrowing costs ``gradually.''

Others predicting an end to house price rises -- and possible falls -- include Citigroup Inc. economist Michael Saunders, Andrew Oswald of Warwick University, and Tony Dye of Dye Asset Management, whose five-year bet against U.S. stocks in the late 1990s earned him the nickname Dr. Doom.

``Britain must never complacently assume that our stability can be taken for granted and would be maintained by any government,'' Brown said, in an attack on the opposition Conservative Party. ``Policies that would tamper with our fiscal rules, fail to take long-term stability seriously, and cut investment in science, skills, technology, infrastructure and enterprise would be bad for Britain and take us back to the old short-termism and stop-go.''

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net

Last Updated: April 28, 2004 11:46 EDT