George argues for rate increase
Tuesday 21 January 1997
In a speech to a Institute of Bankers dinner in Scotland, he said "there could be real dangers in allowing justified concern about the exchange rate to deflect us for too long from moving gradually to moderate the upswing" in the economy.
Last Thursday, Kenneth Clarke, the Chancellor, justified his decision not to raise base rates the day after his monthly monetary meeting with Mr George by saying: "The big thing is that the pound is very strong at the moment and it is very anti-inflationary."
As the pound strengthened further yesterday against the mark, Mr George made clear that the Bank wanted a small rise in interest rates. He also emphasised the need for a gradual tightening to "moderate" the upswing rather than bring the economy to a jarring halt.
However, he reminded his audience that two years ago his message about interest rates was that a stitch in time saved nine and he added: "I bring you the same message."
The speed and size of sterling's appreciation was causing "understandable anxiety", particularly for manufacturers exposed to international competition.
This was already affecting export orders, "clearly a serious issue", creating tension between the strong exchange rate and domestic policy.
But Mr George repeated the Bank's long-standing argument that the stronger exchange rate did not directly affect the problem of the build-up of domestic demand pressure. It would have a one-off downward effect on retail price inflation, but this would drop out of the 12-month calculation during 1998.
The stronger exchange rate would also weaken the trade balance, relieving the pressure on demand, which may have a more lasting effect on inflation.
The Bank would take these factors into account, though there was inevitably a great deal of uncertainty over the timing and scale.
The index for the pound rose 0.2 to 96.8, while against the mark sterling rose 1.14 pfennigs to DM2.7004.
- 1 King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
- 2 The BBC has just done more to eradicate ‘terrorism’ than all our wars since 9/11
- 3 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 4 Presidential optical illusion offers clues to how brain processes faces
King Salman: Just five days in, Saudi Arabia's new king has already overseen a beheading
Auschwitz liberation 70th anniversary: Woman sent to three Nazi death camps describes surviving gas chamber
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Ukip Jelly Babies cause uproar on Amazon
Chilling drone footage captures Auschwitz ahead of 70th anniversary of liberation
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...