Lawson trumpets Britain's robust economy. Chancellor of the Exchequer says nation's at top of European league

Nigel Lawson, the bushy-haired British chancellor of the Exchequer, had just heard the growth rate for the United States economy in the first quarter -- a 1.3 percent annual rate. ``We might beat the US in percentage growth,'' he chuckled.

Indeed, the chancellor expects Britain to enjoy 3.25 to 3.5 percent growth in output of goods and services this year.

Earlier this month, Mr. Lawson boasted in a speech in London that ``the British economy has hauled itself to the top of the European league,'' growing faster than other major continental nations. Now only Japan among the sizable industrial nations is considered likely to grow faster this year -- 4.5 percent, according to a consensus of economists compiled by the newsletter Blue Chip Economic Worldscan.

Britain's good economic performance is not a flash in the pan.

The British economy has grown without recession for four years. Despite the coal strike, it has expanded at an annual rate of 2.5 percent since the end of a recession in the first half of 1981. In the same period, France grew 1.5 percent a year and West Germany 1 percent.

Contrary to the charge of critics, Britain has managed strong business investment growth. Since the trough of the recession, it has grown by 5 percent a year.

In the same period, German investment has climbed less than 1 percent a year; French investment has fallen almost 2 percent a year.

British productivity is up 6.5 percent a year, better than the 5.5 percent in West Germany and 4 percent in France. British exports are up 3.5 percent a year since 1981, compared to 2.75 percent for Germany and France.

``The days when Britain was `the sick man of Europe' have gone for good,'' Mr. Lawson maintains.

In an interview here, where he was attending World Bank and International Monetary Fund meetings, Lawson talked of a new ``vitality'' in the British economy. As evidence, he noted these factors:

The end of the coal miners' strike not only has prompted a boost in output at the pits and among suppliers to the National Coal Board, but also it encouraged management throughout the nation to ``regain its self-confidence,'' as the chancellor put it.

Lawson described the coal strike as ``politically motivated.''

He held that, with its failure, ``We won't see any further political strikes. That will be helpful.''

Another goal of the strike, Lawson said, was to get the government to turn its back on economic realities, that is the need to shut down uneconomic, lossmaking mines, despite ``extremely good'' redundancy terms offered miners.

``That proposition was defeated,'' he went on. ``It marks an absolutely crucial stage in the struggle we have been waging to get trade unions to recognize economic realities. This will be positive in the years ahead.'' Already some unions have settled for satisfactory wage increases without strikes or trouble, he added.

The rate of new business formation has increased ``substantially.'' Venture capital funds, which did not exist until recent years, ``have grown up and are doing good business.''

Investors have been taking advantage of a new tax break (the business expansion program) intended to encourage the provision of capital to new small businesses.

Also, Lawson continued, some businessmen have started new firms as a result of encouragement provided by the easing of the tax burden on stock options. Managers of these new risky enterprises, if successful, can enjoy substantial capital gains, he said.

Speaking of entrepreneurial drive, Lawson commented: ``We have a long way to go before we have that spirit as embedded in the United Kingdom as it is in the United States.

But the change has been very marked, he added.

``There is a great deal more dynamism among British management than there has been for a long time. It is something that doesn't get recorded in statistics. But you feel it very clearly going around the country.''

Britain's major economic problem remains high unemployment -- just over 13 percent. Lawson likes to note that the British economy has been adding jobs faster than have the economies of the Continent, though not fast enough to bring down the unemployment rate substantially.

One problem, he said, was that wage increases on average have been greater than inflation and thus people have been ``pricing themselves out of work.''

Lawson hopes for ``greater moderation'' in pay boosts. But in a free economy, he noted, this depends on what employees and management decide.

In an attempt to make the hiring of the young and the unskilled more attractive, Lawson announced in his new budget last month a reduction in social security taxes at the lower end of the wage scale starting in October.

Thereby management has to pay less for these low-wage workers and, in theory, could afford more of them.

That budget contained only a small cut in taxes -- another way to encourage the creation of jobs by business, according to the free market economists who advise Lawson.

The chancellor explained that he couldn't cut taxes further without boosting the budget deficit.

It is projected at 2 percent of gross domestic product this fiscal year, about one-third the level of the US federal deficit.

``Looking ahead, now we have the budget deficit down, there will be increasing scope for tax cuts,'' he predicted.

Because of the strength of the dollar and the need to boost interest rates in February to protect the pound from excessive depreciation (mortgage interest rates are one price in Britain's retail price index), Lawson said he expects inflation to worsen temporarily, perhaps from the 5 percent of last year to a 6 percent annual rate.

But by the end of the year, he says, it will be back down to 5 percent. He expects it to be lower than that next year.

Interest rates have already dropped from their February peak, and the pound has strengthened by more than 10 percent also.

Both changes, with a lag, should impove the inflation numbers.

He attributed this inflation rate, which has improved dramatically from several years ago but is still not as low as the German inflation rate, to better control of the nation's money supply.

When the latest monthly numbers are announced, the Bank of England will have met its target for three years in a row in the case of the narrow money supply (M1), he said.

The broader measure (M3) should be at the top of the range or just above it.