George holds out for rates rise

Economy: End to Tory uncertainty and early Wall Street record send the Footsie soaring

PAUL WALLACE

AND DIANE COYLE

The Governor of the Bank of England, Eddie George, told a Commons commitee yesterday that he was sticking by his advice that interest rates should rise. The indication came only hours after his monthly meeting with the Chancellor of the Exchequer produced no increase in base rates.

Mr George said yesterday that, as matters stood, it was "less likely rather than more likely" that the Government would achieve its inflation target. After a leadership election widely seen as heralding a lurch towards easier monetary and fiscal policy, the Governor also warned that tax cuts which led to an increase in the Public Sector Borrowing Requirement would have to be offset by tougher interest-rate policy.

Mr George's forceful remarks, made in evidence to the Treasury and Civil Service Select Committee on the Treasury's summer economic forecast, will be widely interpreted as a shot across the Government's bows. They will raise expectations of further clashes between the Chancellor and the Governor in the months ahead.

Mr George rammed home the message that Britain's record as an inflationary sinner meant that the Government had to err on the side of caution. That track record meant that "we do have a credibility problem", he acknowledged. The temptation in the past had been to take risks with inflation. It was "absolutely vital" therefore that the authorities were seen as being not prepared to take risks again.

Asked about the outcome of the May meeting when Kenneth Clarke turned down the Governor's advice to raise interest rates, Mr George denied he had cried wolf.

The Governor used the occasion to underline in no uncertain terms the Bank's strict interpretation of the inflation target. "I think we are now firmly anchored," he said, on an inflation target of 2.5 per cent or less. He denied that the Chancellor's speech at Mansion House and his briefing on it for backbenchers, in which he held out the possibility that inflation might on occasions exceed 4 per cent, had eased the commitment to the target.

Mr George described as "rubbish" the suggestion made by many commentators that the Government's inflation target had been changed.

He said that it would be "intolerable" and "very damaging for confidence" if the Government had in practice a different objective.

Mr George warned that "an irresponsible relaxation of fiscal policy" would be a grave concern. Asked about an increase in the PSBR as a result of tax cuts, he indicated that interest rates would have to rise. The expectation was "that interest rates would have to be higher to offset it".

Yesterday's economic statistics again highlighted the slowdown in growth. Housing starts by the private sector in the three months to May were 14.5 per cent lower than a year earlier, and 7.2 per cent lower than in the previous three months.

The longer leading index of cyclical indicators fell for the 11th month in succession, a typical pre-recession pattern.

Mr Clarke is due to give his evidence to the select comitteee this afternoon.

Comment, page 21

News
Jennifer Lawrence was among the stars allegedly hacked
peopleActress among those on 'master list' of massive hack
Sport
Radamel Falcao
footballManchester United agree loan deal for Monaco striker Falcao
Sport
Louis van Gaal, Radamel Falcao, Arturo Vidal, Mats Hummels and Javier Hernandez
footballFalcao, Hernandez, Welbeck and every deal live as it happens
Voices
A man shoots at targets depicting a portrait of Russian President Vladimir Putin, in a shooting range in the center of the western Ukrainian city of Lviv
voicesIt's cowardice to pretend this is anything other than an invasion
PROMOTED VIDEO
Arts and Entertainment
Alex Kapranos of Franz Ferdinand performs live
music Pro-independence show to take place four days before vote
News
people'It can last and it's terrifying'
Arts and Entertainment
booksNovelist takes aim at Orwell's rules for writing plain English
Arts and Entertainment
The eyes have it: Kate Bush
music
News
Fifi Trixibelle Geldof with her mother, Paula Yates, in 1985
people
News
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Application Support Analyst / Junior SQL Server DBA

£40000 - £45000 per annum: Ashdown Group: An established professional services...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

Business Development Manager / Media Sales Exec

£28 - 32k + Uncapped Commission: Guru Careers: A Business Development Manager ...

C# .NET Developer (PHP, Ruby, Open Source, Blogs)

£40000 - £70000 per annum + Bonus+Benefits+Package: Harrington Starr: C# .NET ...

Day In a Page

Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering
Fashion walks away from the celebrity runway show

Fashion walks away from the celebrity runway show

As the collections start, fashion editor Alexander Fury finds video and the internet are proving more attractive
Meet the stars of TV's Wolf Hall... and it's not the cast of the Tudor trilogy

Meet the stars of TV's Wolf Hall...

... and it's not the cast of the Tudor trilogy
Weekend at the Asylum: Europe's biggest steampunk convention heads to Lincoln

Europe's biggest steampunk convention

Jake Wallis Simons discovers how Victorian ray guns and the martial art of biscuit dunking are precisely what the 21st century needs
Don't swallow the tripe – a user's guide to weasel words

Don't swallow the tripe – a user's guide to weasel words

Lying is dangerous and unnecessary. A new book explains the strategies needed to avoid it. John Rentoul on the art of 'uncommunication'
Daddy, who was Richard Attenborough? Was the beloved thespian the last of the cross-generation stars?

Daddy, who was Richard Attenborough?

The atomisation of culture means that few of those we regard as stars are universally loved any more, says DJ Taylor