David Prosser: It is too early to raise interest rates, whatever the GDP data reveals

It is the Sentance camp that is most likely to have attracted new supporters and an interest rate rise may now only be a matter of months away
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The Independent Online

Today's fourth quarter GDP figures will attract a great deal of attention – understandable enough following that outstanding third-quarter figure – but the data should be taken with a bit of a pinch of salt. For one thing, this is only an initial estimate, based on returns that are about 50 per cent incomplete. For another, December's cold snap will have had a very significant effect on the figures, which makes it tricky to discern trends. A marked slowdown in the recovery might signal that the bounceback is running out of steam even earlier than people expected, or simply that those seemingly endless dumps of snow weren't much good for business.

The most important thing to remember about today's data is that it is for the quarter preceding the date when the Government's austerity measures began in earnest. That was the beginning of the year, when the VAT rate was increased from 17.5 per cent to 20 per cent, the first of several tax increases planned for the months ahead. In other words, while the figures might give us some clue about whether the perception that tough times are ahead has begun to have an impact on the economy, the data will not show the direct impact of those tough times.

For these reasons, it is tomorrow's economic news that is potentially the most important of the week, rather than today's. The publication of the minutes of the Bank of England's most recent Monetary Policy Committee will tell us whether Andrew Sentance has persuaded any of his eight fellow members to vote for an increase in interest rates.

We know Mr Sentance can have only had limited success, since the MPC opted to leave rates on hold. But the committee would have had advance knowledge of last week's inflation figures, which surprised on the upside yet again, so it will be fascinating to see whether anyone was spooked.

Adam Posen, Mr Sentance's negative image on the committee, made it clear in remarks on Friday that he still thinks the fear should be an undershoot of the MPC's 2 per cent inflation target, but his calls for further stimulus havefallen on increasingly stony ground in recent months.

It is the Sentance camp that is most likely to have attracted new supporters and an interest rate rise may now only be a matter of months away. Still, they should wait for the first quarter GDP numbers before taking that decision – which implies no rate rise before May – because the fourth quarter data is an unreliable guide.



The CBI takes on the cowboy builders

Ask any reputable builder what will happen if you knock down a supporting wall without first providing something else to hold the house up. If you're lucky, you'll end up with a mess and a big bill for repairs. If not, you'll find yourself standing in a pile of rubble.

It is difficult to disagree with anything that Sir Richard Lambert, the director general of the Confederation of British Industry, had to say in his farewell speech yesterday. Sir Richard, who stands down on Friday, was effectively pointing out that the demolition work of the Government's austerity cuts came much easier to ministers than the more difficult task of planning the rebuilding process.

That's not surprising. No government in recent times has had a coherent strategy for nurturing well-rounded economic growth, trusting instead that a laissez-faire approach would see the market provide. This is how we ended up with an economy so dependent on financial services.

However, while that failure was dismal enough in times that were, ostensibly at least, better for the economy, it is inexcusable in the current environment. In pruning the public sector so extensively, the Government wants the private sector to take the load – to find opportunities for the 500,000people who will lose their jobs as a result of the cuts. But ministers have worked out where to wield the pruning shears before coming up with any ideas on how to support the private sector as it tries to meet this challenge.

It wasn't supposed to be like this. Vince Cable, the Business Secretary, had intended to publish a white paper on the Government's growth strategy in November, within a few days of the Chancellor's autumn statement. That would have been terribly joined up, but it didn't happen: George Osborne turned up on time with the details of his cuts, but Mr Cable has put back his strategy update until the spring.

To make matters worse, theprivate sector is actually worse off in some respects than it was a year ago. A new scheme to help Britain meet its carbon reduction targets, designed to be revenue neutral, will now see businesses pay an extra £1bn a year in tax. On issues such as immigration, planning and infrastructure, there have been other setbacks.



Still waiting for De La Rue to come clean

The withdrawal of Oberthur from its courtship of De La Rue will prompt sighs of relief in many places – at the company itself and in Government circles, where the thought of being pressed to intervene in a French takeover of the printer of sterling notes will not have been a happy one.

This little episode in the history of De La Rue has not yet come to an end, however. Oberthur's hope had been to capitalise on the weakness in De La Rue's share price caused by its confession last summer of irregularities at its printing presses. And while we now know this hope has been thwarted, we still do not know just what those irregularities have cost De La Rue – specifically whether it has lost its lucrative contract with the Reserve Bank of India.

Having seen the company dismiss Oberthur's indicative bid, which was pitched at a premium to the current price, shareholders now deserve full disclosure.

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