Outlook: Strong passions about small steps

AS TEACUPS GO, the eight members of the Monetary Policy Committee must be feeling that theirs is unreasonably stormy. Amidst the torrents of angst about the level of interest rates and the strong pound during the past week, it has been easy to overlook the fact that the levers of macroeconomic policy are set about right. The hawks who think interest rates should rise are only talking about a quarter point increase to 7.5 per cent. Given the state of knowledge about where the economy is - imperfect - and where it might be heading - uncertain - the debate between the hawks and doves is on a par with mediaeval rows about how many angels might fit on a pinhead.

It is a testament to the new stability in monetary policy that such strong passions are aroused about the right small step to take. It demonstrates that daft big steps have been ruled out. (This of course discounts the flock of lame ducks calling for borrowing costs to be slashed to restore the weakest bits of British industry to health.) All the same, the MPC has a controversial decision to take by noon today.

The eight members are presumed to be split still, so they face three choices. One: disagree again, leave rates unchanged and say nothing, stoking the debate for another month. Two: leave them unchanged but persuade the hawks to declare a pause, hoping this will take some of the steam out of the pound. Three: persuade the doves to accept a small rate increase and announce a pause for the same reason, but outrage the lame ducks. The third is the least risky course for the economy, which is not yet slowing as predicted, but would ruffle the most feathers. Another month of wait and see is the most likely outcome.