George steps up opposition to cut

The Governor of the Bank of England, Eddie George, stepped up his opposition to further interest rate cuts when he met Kenneth Clarke, the Chancellor, last month, writes Chris Godsmark.

Minutes of the meeting, published yesterday, the first since June's quarter-point rate reduction, revealed that the Governor advised "strongly against any further interest rate cut on the basis of the present evidence".

He told Mr Clarke that since the base rate cut, to 5.75 per cent, there had been nothing in the economic figures to alter the Bank's view that rates should have remained at their previous level of 6 per cent.

In reality, Mr George explained, the reduction might have made matters worse, by putting the Government's inflation target at risk.

He said: "Last month's cut in interest rates would, in itself, have increased the risk to the inflation target. To that extent it may have brought forward the time when interest rates will need to rise."

In response, Mr Clarke, with masterly understatement, admitted that he and the Governor were "still slightly apart on the decision to cut rates". But he claimed there had been no difference of opinion in last month's meeting about the need to maintain rates at their current level.

Economists interpreted the minutes as further evidence of a tougher approach by the Bank. Ciaran Barr from Deutsche Morgan Grenfell, said: "Eddie is clearly saying that Ken Clarke will be taking a real chance if he tries to cut rates again. He will lose all credibility with the markets."