Clarke faces further rate rise demands

Economy: OECD warns on Government's inflation target

The row over the future direction of UK interest rates erupted again yesterday among Britain's bankers and industrial leaders as the Organisation for Economic Co-operation and Development (OECD) and NatWest Group's chairman, Lord Alexander, both demanded a rate rise to staunch resurgent inflation.

The advice backs the stance taken on interest rates by the Bank of England, which is expected to renew its warning that the Government is in danger of missing its inflation target in its Inflation Report due out today.

Lord Alexander's call comes after a similar appeal last Friday by Lloyds Bank's chief executive, Sir Brian Pitman.

Some economists are already labelling the unprecedented public co-ordination as an orchestrated attempt to increase pressure on the Chancellor, Kenneth Clarke, by the Bank of England's Governor, Eddie George.

Mr George was left almost high and dry three months ago when the City was convinced that he and Mr Clarke had agreed a base rate rise from the current 6.75 per cent but that Mr Clarke had changed his mind after May's disastrous local election results.

A rate rise would fly in the face of urgent calls for a rate cut from Peter Birch, chief executive of Abbey National on Monday, and other mortgage lenders who want to kick-start the moribund housing market.

Caught in the middle is Andrew Buxton, chairman of Barclays Bank, who as chairman of the Confederation of British Industry's economic affairs committee said last week that although there was no case for a cut, a rate rise would be unnecessary. Yesterday Mr Buxton said: "I don't think it is in anyone's interest to put up rates, and I don't think it would have the desired effect."

In its annual report on the British economy, the OECD said that base rates will have to rise to 7.75 per cent if the Government is to attain its inflation target of 2.5 per cent or less by the end of this Parliament.

It also implicitly criticised the new formulation of the target set out by the Chancellor in his Mansion House speech in June. The report, completed before then, suggests that "the medium-term target for inflation should ideally be below 2 per cent."

The Chancellor said in a statement yesterday that he viewed the OECD survey as confirmation of "the success of the Government's policies on a broad front. I particularily welcome the recognition that supply side reforms have resulted in a more flexible and less inflation prone economy, and the OECD's assessment of the success of the monetary framework."

Lord Alexander, unveiling NatWest's half year results yesterday, said that he "did not believe the Government was on course" for its inflation target.

"The Government will have to contemplate an increase in interest rates. It would be very disappointing if we once again let inflation get away," said the NatWest chairman.

The OECD added its voice to calls for an independent Bank. Despite the more public role the Government has given the Bank, "monetary policy in the UK remains subject to greater political control than in many other OECD countries, including the US, Japan, Germany and France. Credibility might be further enhanced by giving the Bank responsibility (possibly with legal backing) for deciding on the size and timing of interest rate changes needed to achieve the government's inflation objective."

The OECD also endorsed the Bank of England's concern about the effect of the 5 per cent depreciation of the pound in the first half of this year. If sustained, this represents "a modest unplanned easing in monetary conditions."

PROMOTED VIDEO
News
Angelina Jolie with her father Jon Voight
people
News
Bill Kerr has died aged 92
people
Sport
footballPremiership preview: All the talking points ahead of this weekend's matches
Arts and Entertainment
Warner Bros released a mock-up of what the new Central Perk will look like
tv'Friends' cafe will be complete with Gunther and orange couch
News
Keira Knightley poses topless for a special September The Photographer's issue of Interview Magazine, out now
people
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SAS Business Analyst - Credit Risk - Retail Banking

£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

Project Manager - Pensions

£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

KYC Analyst, Birmingham - £200-£250 p/d

£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...

Test Manager - Banking - Yorkshire - £450 per day

£400 - £500 per day: Orgtel: Test Manager - Banking - West Yorkshire - £400-£5...

Day In a Page

Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone