George treads difficult line

The eyes of the City will be on the Bank of England today as it unveils its quarterly inflation report. After the widespread perception that the Chancellor overruled Bank of England Governor Eddie George last week on a rise in interest rates, attention will be focused on the Bank's new projection for inflation over the next two years.

The key question is whether the Bank still thinks the Government can meet its ambitious target of 2.5 per cent or less for the underlying rate of inflation by the end of this Parliament.

Dealers will be looking for any sign of disagreement between the Chancellor and the Governor following a day in which the pound recovered by 2 pfennigs against the mark but fell by a further cent against the dollar.

In particular, they will be scrutinising the report for evidence that the Bank is taking a gloomier view on the prospects for inflation following the fall in the pound of 6.5 per cent against a trade-weighted basket of currencies since the start of the year.

Mr Clarke came out fighting yesterday to defend his controversial decision to keep interest rates on hold. "I'm not a Chancellor who ever has been or ever will be driven off the right economic course because of short- term political pressures," he told the annual Scottish conference of the Conservatives party.

In an interview with the BBC, he said that sterling's performance depended on the fundamentals of the economy. "I don't have an exchange rate target," he reiterated.

With such high stakes, it is unlikely that the inflation report will lay concerns on the line. It is not in the Bank's interests to precipitate a full-blown sterling crisis. In this sense, the Chancellor is likely to succeed in calling the Governor's bluff in the short run, suggests Roger Bootle, chief economist of HSBC Greenwell. Any worries are likely to be heavily coded and between the lines.

But success for the Chancellor could prove short-lived if sterling continues to slide or if the economy turns out to be growing more strongly than Mr Clarke thought last Friday.

The danger is that he might be forced into a panic increase in interest rates to convince the markets that he is serious about inflation. If that happened the rise could well be more than had he acted on Friday.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Recruitment Genius: Web Developer - PHP

£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

Day In a Page

Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

Greece elections

In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

Holocaust Memorial Day

Nazi victims remembered as spectre of prejudice reappears over Europe
Fortitude and the Arctic attraction: Our fascination with the last great wilderness

Magnetic north

The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

Homeless Veterans appeal

Homeless in Wales can find inspiration from Daniel’s story
Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

Front National family feud?

Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
Pot of gold: tasting the world’s most expensive tea

Pot of gold

Tasting the world’s most expensive tea
10 best wildlife-watching experiences: From hen harriers to porpoises

From hen harriers to porpoises: 10 best wildlife-watching experiences

While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

'I don’t want just to hold tackle bags, I want to be out there'

Nick Easter targeting World Cup place after England recall
DSK, Dodo the Pimp, and the Carlton Hotel

The inside track on France's trial of the year

Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
As provocative now as they ever were

Sarah Kane season

Why her plays are as provocative now as when they were written
Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

Murder of Japanese hostage has grim echoes of another killing

Japanese mood was against what was seen as irresponsible trips to a vicious war zone
Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore