After Fudge & Fixit, the new game on rates: Outlook

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The Independent Online
The Chancellor and the Governor of the Bank of England deserve nothing but praise for bringing monetary policy decisions out of the shadows of Whitehall into the full glare of publicity. Disclosure of who said what to whom and when is sure, in time, to lead to better policy-making. Transparency in decisions introduces an invaluable discipline for preventing those old favourites of the twilight official world, Messrs Fudge and Fix. But anyone who thought that greater openness will make it easier to call the next move in interest rates needs to think again. Readers of the monetary tea-leaves in the City are as divided as ever about when the next hike in interest rates will come.

Another inevitable consequence of a more open regime is that there is ample scope for embarrassment about differences of opinion between Great George Street and Threadneedle Street. .Even if the minutes of the meeting were - perish the thought - doctored, word of differences of opinion between the Chancellor and Governor would soon get around. Different interpretations about the appropriate dosage of interest rate medicine are only to be expected. For one thing, the economy is displaying symptoms of twodifferent diseases. The export and manufacturing sector is overheating and clearly in need of another cooling dose. The housing market and retail sector are weak and flaccid, and will need lower base rates before they can begin to revive. On top of this, Mr Clarke and Mr George answer to different constituencies. For the Chancellor, it is the electorate, many of whom are famously not Feeling Good at present. Mr George in turn must answer to the financial markets.

Only brave commentators will make a confident prediction about the outcome of Thursday's meeting between Chancellor and Governor. After all, most of them were wrong in September, and half of them were wrong in December.

But, with higher US interest rates a racing certainty when the Federal Reserve meets today and tomorrow, and a Bank of England inflation report that will spell out the evidence of rising prices due next week, the odds on a February increase in base ratesare better than evens.

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