OUTLOOK:More openness, less guesswork, please

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The Independent Online
The traditional inspection of the entrails of the latest monthly monetary minutes is unusually interesting this time round, for they report the discussion between Kenneth Clarke and Eddie George leading up to the rise in base rates last month. The trigger, it seems, was the big upward revision to the estimate of national output in the third quarter.

The Chancellor insisted his views were not affected by his defeat on the second stage of VAT on fuel the night before the meeting. Indeed? For all their proclaimed openness, it is hard to resist the suspicion that there are some things these minutes do not tell us.

Modest censorship is unimportant, though, compared to the failure on the part of Mr George and Mr Clarke to be more precise about how they weigh up the whole array of indicators of the economy discussed at each meeting. Their failure to do so has given birth to the monthly City ritual of figuring out what the minutes actually mean.

After money targets that could never be hit and the exchange rate mechanism that broke down, we have returned to an ad hoc and apparently arbitrary monetary policy based on little but the gut reaction of Eddie George. The Governor of the Bank of England inspects the data and passes his judgement.

Sometimes discussion focuses on recent price rises, sometimes on surveys of pay settlements and price expectations, sometimes on the output figures. After the difficulties experienced with earlier monetary policy rules, it might well be the case that thebest option is for the Governor to flex his judgement. But does a fall in output this month outweigh rising pay settlements? It is anybody's guess. Telling us more about the reasoning should be the next step in the process of making monetary policy moreopen.

It is important for two reasons. One is that it would reduce the uncertainty that hangs over the path of interest rates from month to month. This serves no useful purpose, apart from keeping City analysts gainfully occupied, and might even have undermined confidence in the economy. It would also help to inform the debate about whether the present upsurge in rates is justified. Either way, Mr George and Mr Clarke should tell us exactly what they think, and take more of the guesswork out of interpreting their policy.