Britain's Chancellor of the Exchequer, Mr Gordon Brown, said yesterday that the government had tightened fiscal policy substantially and enough. In the wake of Mr Brown's 1998/99 budget on Tuesday, financial market traders and analysts said he had done little to rein in rampant consumer demand, increasing the likelihood of another rise in interest rates from the Bank of England.

But at a post-budget news conference, Mr Brown said fiscal policy was being tightened by considerably more than projected in last July's budget - Labour's first in 18 years. "There has been a very substantial tightening indeed," Mr Brown said.

The cumulative policy tightening over the first two years of the parliament would be the equivalent of 2 per cent of national income, he said.

"We had said the tightening would be 1.0-1.4 per cent. It will now be ú17 billion sterling, or 2.0 per cent of national income."

Mr Brown took comfort from economic data released earlier in the day which showed both retail sales and average earnings - the two main areas of inflationary pressure in the economy - had unexpectedly slowed.

Retail sales dropped 1.2 per cent in February as consumers put their purses away after a January sales binge. Average earnings growth slowed to 4.5 per cent in January from an originally reported 4.75 per cent the month before. That figure was also revised to 4.5 per cent.

"These figures are encouraging but there has got to be vigilance. We need responsibility across the economy from boardrooms outwards," Mr Brown said.

"If wage settlements are too high it will affect the growth potential of the economy," he said.

The fiscal tightening has come from a host of tax changes such as lowering interest relief for mortgage payments as well as very strict control of public spending.

Many of these measures had already been announced before Tuesday's budget, although some are yet to kick in.

The 1998/99 budget contained little extra tightening which initially disappointed markets.

Mr Brown also made clear that the Bank of England's monetary policy committee, which meets each month to set interest rates, had been briefed on the fiscal effect of the budget at its March meeting.

Yesterday, he again denied he was building a war chest to enable a spending spree before the next election. "We are determined to meet our golden rule of only borrowing to cover investment. We will be cautious."