LETTERS: Financial logic underlying interest rate rises

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The Independent Online
Sir: Your leading article "Ken and Eddie's tasteless joke" (4 February) is mistaken in several respects.

1. It was John Major on his first day (27 October 1989, in Northampton) as Chancellor, not Norman Lamont, who said that, if it is not hurting, it is working, 2. The economy is not growing at 4 per cent a year, but at an annual rate of 3.1 per cent in each of the past two quarters, having slowed down markedly from the 3.5 to 5.5 per cent rates achieved in the three quarters before that.

3. It is not true that even 4 per cent "would produce an inevitable and painful crash, if it were not controlled". On the contrary, 4 per cent is about what is needed for a couple of years to close the 3.5 per cent output gap that is still left over fromthe recession and, so far, partial recovery.

4. It is not true that given that American rates rose again on Wednesday, the financial markets would have forced the Chancellor to raise British rates. There is no such mechanical connection. A weaker pound may be preferred.

Whether or not the Chancellor was right to increase interest rates this week can be vigorously argued and mainly depends on how the output gap is regarded.

Yours, Peter Jay Woodstock, Oxfordshire 4 February