Kenneth Clarke has discussed the question of a cut in interest rates with Eddie George, for the first time since the minutes of their monthly meetings started being published last year.
In his meeting with the Governor of the Bank of England on 7 September, the Chancellor said that "although there was no case for an increase in interest rates this month, there was also, in his view, no case for reducing them".
Geoffrey Dicks, UK economist at NatWest Markets, suggested that Mr Clarke could be seeking to change the terms of the debate. "It is significant the Chancellor now feels that the question has to be raised."
Mr Clarke said that the outlook for inflation had improved. There was now "very strong evidence that growth had slowed to a more sustainable rate". Furthermore, cost pressures from higher input prices "had so far been absorbed more than expected, and there was little to suggest that they would not continue to be in the future".
According to the Chancellor, "the main potential cause for concern was the strength of the monetary data, which remained puzzling at a time when activity was more subdued".
The Governor took a more pessimistic line on costs: "Despite much talk of easing cost pressures, there was not much firm evidence of this." The pressures to pass on cost increases remained "very strong".
Mr George conceded that economic activity had softened through the summer. However the probability "was that final demand would continue to grow fairly steadily". This would allow the overall rate of growth to pick up after a period in which excess stocks had been worked off, although the possibility of somewhat weaker growth could not be ruled out.