Lucky Ken plays loose with target for inflation
Thursday 25 May 1995
The Chancellor's robust defence of his decision not to raise rates on 5 May, contrary to the advice of Eddie George, Governor of the Bank of England, has been justified. But have events also re-established the credibility of current monetary arrangements?
The optimistic interpretation is that the benign outcome proves the arrangements are emerging from a difficult adolescence into full maturity. They have coped with the big test, disagreement between the Chancellor and Governor without a major attack on the currency. What's more, the judgements so far have been right. The economy is still doing well; inflation has been lower for longer than at any time since the early 1960s. Full-blown optimism would be dangerous, however. If monetary policy is just a matter of judgement - and it has turned out that it is, indeed, just a matter of Mr Clarke's judgement - those judgements can be wrong as well as right.
The great appeal of the Ken and Eddie show for the financial markets was precisely that the new arrangements seemed to remove some of the scope for touchy-feely policy making. It exposed the Chancellor to the discipline of embarrassment if he rejected the Governor's hard-line advice. Trust Mr Clarke to brazen it out. On the other hand, the Chancellor's seeming nonchalance about the details of the inflation target may concern. There is no doubt that he wants to do well, but he gives the impression of believing that if inflation does breach the top of the tight 1-2.5 per cent target range, it won't matter too much. This may be no more than good politics. It clearly makes sense to prepare the electorate for failure to meet the target. Britain's inflation performance will still be better than at any time in recent history; the cost of squeezing it a bit more to come within target might be punitive. Even so, a Chancellor prone to the belief that targets are notthat important provided you are in the ball park is bound to worry the markets a little.
Mr Clarke will get the chance to dispel this impression when he extends the inflation target, probably in next month's Mansion House speech. He will get another chance later in the year, when growth still above-trend will most likely necessitate higher base rates.
It looks very much as though 2015 will be a good year for the world economy, after all – and, if it is, that will be thanks to the fall in the oil price. It won't be good for everyone and we have already seen the pressure it puts on the Russian leadership – though, before you conclude that sometimes there is natural justice in the world, remember that the people who are hurt are not leaders such as Vladimir Putin. Other oil- and gas-exporting countries are damaged, too, and I think we will see further fallout in unpredictable ways. But the net impact is strongly positive, more so than most commentators at present acknowledge. The winners far outnumber the losers.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
Sony hack: Angelina Jolie branded 'seriously out of her mind' in further embarrassing leaked email saga
Panic Saturday: 13 million Britons spend £1.2bn – while 13 million others across the country live in poverty unable to afford food
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...