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
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Guru Careers: Stockbroker

£Basic (OTE) + Uncapped Commission: Guru Careers: A Stockbroker (qualified / p...

Recruitment Genius: Financial Adviser

£20000 - £60000 per annum: Recruitment Genius: Are you recently QCA Level 4 qu...

SThree: Graduate Recruitment Resourcer

£20000 - £22500 per annum + OTE £30K: SThree: SThree Group have been well esta...

Day In a Page

Robert Fisk in Abu Dhabi: The acceptable face of the Emirates

The acceptable face of the Emirates

Has Abu Dhabi found a way to blend petrodollars with principles, asks Robert Fisk
Nepal earthquake: One man's desperate escape from Everest base camp after the disaster

Escape from Everest base camp

Nick Talbot was sitting in his tent when the tsunami of snow and rock hit. He was lucky to live, unlike his climbing partner just feet away...
Adopting high fibre diet could dramatically cut risk of bowel cancer, says study

What happened when 20 Americans swapped diets with 20 Africans?

Innovative study in the US produces remarkable results
Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell