The Governor was repeating the warning he had given Kenneth Clarke, the former Chancellor, at their April meeting. Newly published minutes of the meeting showed the Bank had strongly recommended a quarter-point increase in base rates. "What we're also seeing is robust domestic demand growth at a rate which can't be sustained for very long without actually giving rise to inflationary pressures further down the track," Mr George said in a radio interview yesterday.
According to the minutes, he told Mr Clarke the need for a tighter policy in order to have a chance of meeting the inflation target two years ahead had become more urgent. The Bank recommended "making a start now".
Although the former Chancellor turned down the advice ahead of the election, Gordon Brown raised base rates to 6.25 per cent within a week of polling day.
With figures yesterday showing the housing market robust and a strong rise in consumer borrowing last month, most analysts expect the Bank to announce a quarter-point increase in June or July. Figures from the main high street banks and building societies yesterday showed the housing market recovery continued, while other consumer borrowing increased.
New mortgage lending by building societies rose slightly compared with March to pounds 1bn, about the same level as a year ago despite the transfer of National & Provincial and Alliance & Leicester to the banking sector.
Mortgage lending by banks was almost the same as in March, at pounds 740m, and up from pounds 568m a year earlier. The banks reported the second-highest total on record for consumer loans, at pounds 1.2bn in April. However, the growth in total lending by banks and building societies declined a shade to 8.9 per cent year on year. Likewise, growth in M4, the broad money measure, slowed to 10.4 per cent from 11.2 per cent in March.
Analysts reacted cautiously as transactions in the gilts repo market accounted for much of the slowdown. Monetary growth in double digits will still concern the Bank. The minutes showed that Mr George had drawn attention to strong M4 growth in the April meeting. He also said that the pace of earnings growth, since revised down, was uncomfortably high.