Mr Clarke can't have it both ways
Thursday 14 March 1996
The white-socked, rainbow-jacketed futures traders whose business is to make a profit from guessing the future level of base rates have bad news for the Chancellor. They reckon the cost of borrowing has bottomed out and will have to start climbing by the Autumn.
Even worse, in a serious thumbs down for the current anti-inflationary strategy, their expectations for inflation and interest rates further down the road have significantly worsened since the latest quarter point reduction in rates.
By contrast, the City is awash with posh commentators who think the economy is frail and urge Mr Clarke to slice base rates by another point to 5 per cent. Yesterday's news of a small increase in the unemployment claimant count last month after 29 successive falls was more grist to their mill. But the weight of money is against these scribblers.
This is not just because the financial markets are packed with inflation hawks who think Eddie George has let the side down by accepting the recent flurry of rate cuts. The indicators of economic weakness, mainly in manufacturing, grab the headlines, but there are other indicators of buoyancy.
The minutes of the monthly meeting between the Chancellor and Governor disingenuously suggest that it is only the money supply that is flashing amber, while everything else has been green for go on reductions in base rates. This does not address a whole range of other forward-looking economic indicators such as share prices, land values and house prices. Nor does it comfort monetarists like Professor Tim Congdon, a Treasury ``wise man'', whose recent forecast says double-digit monetary growth could take the inflation rate back towards 10 per cent.
As Mr Clarke keeps saying, the economy is likely to pick up this year for all sorts of reasons. The market response is that he can not have it both ways; if consumer spending grows any faster, base rates will not be able to fall any further. All that is needed now to put the kybosh on all lingering hope of still cheaper borrowing rates is a sterling crisis. As political uncertainty grows, that's a real risk.
Notes from a small island: Is Sealand an independent 'micronation' or an illegal fortress?
World news in pictures
You thought Ryanair's attendants had it bad? Wait 'til you hear about their pilots
David Cameron goes to war with press over 'swivel-eyed loons' slur
Revealed: Eerie new images show forgotten French apartment that was abandoned at the outbreak of World War II and left untouched for 70 years
- 1 Heading for America? Prepare for the longest US immigration queues ever
- 2 Boxing: Carl Froch slams fellow Brits for sparring with Mikkel Kessler
- 3 You thought Ryanair's attendants had it bad? Wait 'til you hear about their pilots
- 4 David Cameron goes to war with press over 'swivel-eyed loons' slur
- 5 It’s official: thanks to Stephen Hawking's Israel boycott, anti-Semitism is no more
BMF is the UK’s biggest and best loved outdoor fitness classes
Find out what The Independent's resident travel expert has to say about one of the most beautiful small cities in the world
Win anything from gadgets to five-star holidays on our competitions and offers page.
iJobs Money & Business
£550 - £600 per day: Orgtel: Fidessa Analyst / PM - Banking - London - Up to £...
£450 - £500 per day: Orgtel: Sourcing Manager - Banking - London - Up to £500p...
To be discussed at interview.: Queen Elizabeth's School: An experienced and ef...
£294.05 - £330.92 per day + 150 per day travel and accommodation: Orgtel: A le...