Bank to push for another interest rate rise

Eddie George, Governor of the Bank of England, yesterday gave another veiled warning that the Treasury remained too complacent about the chances of rising inflation in the next couple of years. He indicated that the Bank would soon push for a further increase in interest rates.

Giving evidence to the House of Commons Treasury select committee about last week's Budget, the Governor said: "The Treasury's assumptions are more optimistic than the Bank's forecasts." Mr George reiterated the Bank's view that inflation would start to rise late next year and early 1998, in contrast to the Treasury's Red Book forecast that inflation would stay at 2.5 per cent or below for the next three years.

Signalling the Bank's intention to push for an interest rate increase in the near future, he said: "Some further rate rise will be required at some point in order to give us a better than even chance of achieving the inflation target." The Government's target for inflation is 2.5 per cent or below by the general election and beyond.

However, the Governor dampened speculation that the economy was on the brink of dangerously overheating. Asked by select committee members whether the economy was heading for a 1980s-style economic boom, he replied: "No - not an Eighties-type boom. That's talking about intensity."

Meanwhile, new evidence on retail sales and car sales added support to the view that inflationary pressures had not yet taken off. The Society of Motor Manufacturers reported that new car registrations in November this year fell 5.4 per cent compared with November last year, from 143,055 to 135,342.

The Confederation of British Industry's monthly survey of distributive trades showed that sales and prices rose less fast in November than in October. The distributive trades survey takes evidence from retailers across the country and measures the balance between the number of companies giving positive answers and the number giving negative answers. The balance of firms reporting increased sales compared with a year ago fell from 55 per cent in October to 48 per cent in November.

Alistair Eperon, chairman of the CBI's distributive trades panel said: "Based on the evidence of the survey, interest rates should remain on hold."

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