In a speech to the Chartered Institute of Bankers in London last night, Mr Pennant-Rea said the Bank of England had started to raise base rates in September because of the danger that inflation would exceed the Government's 1-2.5 per cent target by late 1996. By acting early, he said, "we have improved the chances that interest rates themselves will not have to rise so much during the course of this economic cycle".
However, judging monetary policy was not an exact science, and Mr Pennant-Rea, like Mr George the previous day, cautioned against false certainty.
He dismissed two types of argument that inflation in Britain was bound to rise. One was the view that lower inflation was simply the result of recession, and recovery would inevitably lead to faster rises in prices.
The second was that cheap labour in low-cost Asian economies had been crucial. Mr Pennant-Rea said British imports from Asia were too small for this to have had a powerful effect on prices here.
He concluded that Bank credibility was improving. Market expectations of base rates had fallen from 9.5 per cent in September to just over 7 per cent now.