Outlook: Interest rates

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EVERYBODY - retailers and manufacturers alike, unions and bosses, the Financial Times and no doubt Rudolf the Red-Nosed Reindeer too - is urging the MPC to follow the Nike strategy: just do it. Slash a full point off interest rates! But the monetary nine are made of sterner stuff than the rest of us. They neither should nor will give way to the impulse for such an extravagant display of festive spirit.

This is not to say that there will be no rate cut today. A quarter or half- point reduction is a racing certainty. But all those urging a bolder move should recall that the UK has the worst inflation record among the major economies. The slowdown so far has been enough to get inflation to its target but no further.

The Bank's inflation report last month showed it staying around 2.5 per cent, not falling; and a bit of seasonal retail gloom will not have changed the forecast much during the past month. Other forecasters, no matter how gloomy about the economic outlook, also see inflation staying close to target.

What the circus of demonstrations in Threadneedle Street and strident punditry calling for decisive action really demonstrate is a widespread belief that the Bank of England should act like chancellors always did, and use interest rates to fine tune output and jobs over the business cycle. Britain's long history of such monetary fine-tuning shows that it simply doesn't work.