Treasury 'wise men' split on interest rates
Economics: advice on inflation and employment
Wednesday 24 May 1995
The Treasury's panel of independent economists is evenly split on whether or not a rise in base rates is needed soon, according to their latest assessment of the economy. There could hardly be a clearer illustration of the Chancellor of the Exchequer's view that the decision on interest rates earlier this month was ''finely balanced''.
Three of the six forecasters - Andrew Britton (National Institute of Economic & Social Research), David Currie (London Business School) and Gavyn Davies (Goldman Sachs) - said Mr Clarke's failure to raise base rates was a tactical error. All three saw inflationary dangers stemming from the pound's fall this year. Professor Currie saw sterling's weakness as a direct result of the lack of credibility in monetary policy, and thought a rise in interest rates would help the exchange rate recover.
The others said Mr Clarke had made the right choice on 5 May, but for a variety of reasons. Tim Congdon (Lombard Street Research) said that the exchange rate would recover, and domestic demand was weak. Wynne Godley (Cambridge University) thought spending cuts or higher taxes would be a better way to tighten policy if the economy was still growing fast enough to lead to higher inflation. Patrick Minford (Liverpool University) saw little inflationary pressure and said monetary policy was already too tight.
The panel's forecasts for 1996 split along the same lines. Those who said interest rates would have to rise to keep inflation within the target predicted slower growth in 1996 than the 3 per cent they expect on average this year. The other three forecast no slowdown. The lower pace of current growth is ''the pause that refreshes,'' according to Mr Congdon.
Professor Minford found himself in a minority of one on the question of tax cuts. He said the ''healthy underlying position'' of the public finances justified tax cuts, perhaps of the order of pounds 20bn in total. A fellow panelist described this view as ''barmy''.
All the other five members thought there was little scope for lower taxes unless fully matched by spending cuts - although they included small tax reductions in their forecasts as a matter of political realism.
- 1 This 'woman calls police to order pizza' story isn't going where you're expecting
- 2 Axe wielding man shot dead after attacking four New York policemen on busy street
- 3 Watch what happened when food critics were unknowingly served McDonald's
- 4 Jimmy Carr's Oscar Pistorius joke goes a bit too far at the Q Awards
- 5 Ottawa shootings: Bruce MacKinnon's cartoon is the perfect tribute to soldier Nathan Cirillo
Of course, teenage girls need role models – but not like beauty vlogger Zoella
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Support for EU membership 'at highest level since 1991' with most Brits wanting to stay 'in'
Thousands with degenerative conditions classified as 'fit to work in future' – despite no possibility of improvement
Attacks on 'Ukip Calypso' show how skewed people’s priorities are
Poppy Appeal 2014: This is why I won't be wearing a red poppy this year
iJobs Money & Business
£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...
£30000 - £35000 Per Annum plus excellent benefits: Clearwater People Solutions...
£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...