The Monetary Policy Committee concluded at its last meeting that this week's Budget would leave fiscal policy "somewhat tighter". Its nine members voted unanimously to leave interest rates unchanged until all the Budget details were known.
The discussion made a rate rise in April more likely, according to City analysts. Geoffrey Dicks of Greenwich NatWest said: "The hawkish tendency may be back on a war-footing next month."
The minutes of the March MPC meeting, released yesterday, suggest the Treasury's briefing emphasised the current toughness of fiscal policy rather than the future relaxation.
Leo Doyle, an economist at Dresdner Kleinwort Benson, said the MPC had been given a "misleading steer". "It is quite clear the Treasury highlighted the near-term fiscal tightening and made no reference to the substantial spending increase in 2001 and beyond," he said.
"Overall, the broad fiscal picture looked somewhat tighter than had seemed probable a month ago," the minutes said, adding that a full analysis would be needed later.
The record of the MPC's discussion said net public sector borrowing would be 0.25-0.5 per cent tighter in the next two financial years, whereas the Budget documents show a 0.1 per cent tightening followed by subsequent loosening.
The Institute for Fiscal Studies yesterday confirmed the initial City view that there had been a large discretionary loosening of fiscal policy. But it said the public finances would continue to meet easily the Chancellor's rules for prudence, especially as the plans were based on cautious assumptions about economic growth.
The MPC's debate on the economy indicated that some hawkish members already thought there was a case for a quarter-point increase in interest rates. The minutes noted demand growth was stronger than predicted, and that the Bank's forecast for demand growth was lower than most.
The committee took little comfort from hints of slower gains in house prices, noting that house price inflation would have to slow "substantially" to come into line with the Bank's forecasts. The most recent figures, anyway, point to a February rebound in the market.
The MPC also debated the sharp rise in average earnings growth in December, and contrasted the UK with the US. In contrast to the US, higher pay growth in the UK had not been accompanied by faster productivity growth. While some of the pick-up was likely to be due to millennium bonuses, these had been paid across the Atlantic too.
"It is clear the Bank remains worried about wage inflation and the strength of domestic demand," said Dharshini David at HSBC. She said a quarter-point interest-rate increase was on the cards next month, as earnings growth had climbed again.
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