The bank of England resembles the proverbial swan – gliding serenely along a steady path of unchanging interest rates, but, beneath that calm surface, some furious pedalling activity.
Well, something like that. The point is that we should not be deceived into thinking that the long period of stability in monetary policy – the last boost to quantitative easing (QE) was in November, and the last change in rates in March last year – denotes stability of outlook. One external MPC member, Adam Posen, has said that the chances of a wild overshoot or undershoot of the 2 per cent inflation target is greater than the MPC getting near to it.
The minutes of the last meeting suggest that the Committee's discussion split three ways, with some members arguing for more QE; one member, Andrew Sentance calling for a retrenchment; and others, probably including the Governor of the Bank, Mervyn King, arguing that the balanced risks suggested no change in policy, which remains highly expansionary. In the event there was a 7-1 vote to keep policy on hold, which understates an increasingly agonised debate.
The MPC's task is complicated because, as Mr King has admitted, inflation will be above target for "much of next year" – even as the economy remains in the doldrums. A hike in VAT from January will keep the headline figure high.
The debate within the MPC mirrors the way policymakers around the world are thinking about which way to turn. Yesterday the Japanese Prime Minister, Naoto Kan, said he was watching his economy's progress to see if a fresh stimulus is required, as worries mount that the world's second largest economy is losing momentum; only a few months ago the talk in Tokyo was of a tightening in fiscal and monetary policy.
Mr Kan told Japanese MPs that "the economy is picking up steadily but the jobless rate is at a high level and optimism is not warranted about the situation in other countries. We will closely watch how the economy is performing to decide whether we need to take some kind of response."
Similarly the chairman of the US Federal Reserve, Ben Bernanke, has suggested the American economy may need a further push, given the "unusually uncertain" outlook; there was a "considerable way to go" before it made a full recovery.