Outlook: Confusion for Bank-watchers

The more transparent the inner workings of the Bank of England become, the more confusing its decisions seem to be. Never before have so many of its representatives spent so much time explaining in so much detail when and why they thought interest rates should move - or not - by a quarter point.

Unfortunately all this openness doesn't seem to make the conduct of monetary policy any more predictable than when it was left in the hands of capricious politicians. Rather the reverse. At least with the politicians you knew they'd cook the policy to serve their own political goals. By contrast, several hours of questioning by MPs of the Bank's Monetary Policy Committee yesterday failed to elicit much on which way interest rates would next move.

A good part of the explanation for the more transparency, less clarity paradox lies in economic developments. The one thing the MPC members certainly agreed on yesterday was the fact that they face a genuinely difficult choice at the moment. For every indicator pointing one way, there is another pointing in the opposite direction. Retail sales too strong last month? Pay settlements creeping up? Well, manufacturing output is falling and broad money growth is at last slowing down. Some bits of the economy are too strong but perhaps slowing, others are too weak. Nobody really knows how the countervailing forces will affect inflation.

Nor can anyone blame the MPC for disagreeing about a small change in interest rates, and whether or not that will make any difference to inflation down the road. The economic outlook is inherently uncertain around the turning point of the cycle, doubly so given the Asian crisis and impending start of Emu. Even so, the paradox is not completely resolved. It may be that over time it will become easier to figure out how the minds of MPC members work in different circumstances.

For now, the judgment about interest rates is being made not as in the past by a single person - the Chancellor - whose thought-processes had to be second-guessed, but by eight, soon to be nine. The complex art of Bank-watching, as the MPC engages in its ever more complex art of monetary policy, is only in its infancy.