COMMENT:All eyes turn to Mr Clarke's corset
Tuesday 13 June 1995
The aim of setting an inflation target is to establish a clear criterion by which policy can be judged - and a penalty, therefore, if it is exceeded. It is an attempt to build up the credibility of the authorities' commitment to low inflation in the eyes of financial markets.
From this perspective, the problem with the UK system is that, for all the new involvement of the Bank of England, power remains with the Treasury. This was graphically illustrated in the controversial 5 May decision to keep interest rates on hold, one widely interpreted as a political response to the appalling local election results the day before. The fact that the economic data have since largely gone the Chancellor's way will not dispel the conclusion the markets will have drawn from that.
From another perspective, the inflation target can be seen as too rigid. Inflation is bound to move up and down in the course of the business cycle. It certainly makes little sense to set a narrowly constrained target for an arbitrary date which might turn out to be the top of the recovery, as Norman Lamont did when he first set the lower range. However, some bounds have to be set if the exercise is to have any meaning at all. There is no point in saying you are going to put on a corset that is so loose it will never restrain.
Mr Clarke's restatement will be closely watched to see whether he is creating get-out clauses for a relapse into an old-fashioned electioneering boost to the economy. But ultimately it is deeds that will count rather than words. This is all the more so since the regime has only had to live with the relatively easy part of the economic cycle, when there is downward pressure on inflation. Mr Clarke may restate the target but the real test is still to come.
Jeremy Paxman reveals he has heard senior Tories calling activists 'swivel-eyed loons'
Gay couple beaten in park urge MPs to moderate language on gay marriage
Strewth mate. Aussies wave goodbye to Britain as it becomes too pricey to stay
X marks the spot: The find that could rewrite Australian history
'There are empty spaces where there used to be living rooms, bedrooms, classrooms': President Barack Obama says America is praying for Oklahoma in wake of tornado that claimed 24 lives
- 2 Austerity has hardened the nation's heart
- 3 Gay couple beaten in park urge MPs to moderate language on gay marriage
- 4 Why Arsène Wenger must spend to put icing on the cake and buy likes of Stevan Jovetic for Arsenal
BMF is the UK’s biggest and best loved outdoor fitness classes
Win anything from gadgets to five-star holidays on our competitions and offers page.
iJobs Money & Business
£180 - £230 per day: Orgtel: Operations Analyst - Leading Bank in the City of ...
£500 per day: Orgtel: A top tier banking client urgently requires Finance Busi...
£425 - £550 per day: Orgtel: Senior Finance Project Manager - £550 - Bristol -...
£150 - £250 per day: Orgtel: KYC Analyst - London - Banking - £150-250/day C...