Which way is the Governor steering the economy?

Forecasts for the next move in interest rates were thrown into doubt yesterday after Sir Edward George, the Governor of the Bank of England raised the prospect of a rate hike just hours after hinting at a cut.

The financial markets are now eagerly awaiting the Governor's speech later today – his third comment on policy in as many days.

Sir Edward, who was on a trip to the North-west, told local radio the Bank would have to raise rates unless consumer spending slowed of its own accord. "I think the global economy has turned the corner," he told BBC Merseyside. "We may be seeing a situation where the international economy is stronger, and then we will be able to see consumer spending slowing of its own accord or we will have to act to moderate it.

"If we don't see that moderation at a time when the global economy is picking up then that's the circumstance in which we would have to raise rates to bring it back."

Although this in line with the Bank's New Year message it appeared at odds with his remarks in Manchester on Tuesday. Then he admitted the Bank was in a "quandary", saying the key question was how much risk it should take "by cutting interest rates further now, to sustain consumer demand".

Asked yesterday if that was a hint rates would be cut, he said "may" was the appropriate word.

Analysts at the consultancy 4cast said it was a "surprise change of emphasis. It is in contrast to the easing bias of recent MPC minutes and his speech last night".

Some economists in the City believe the Governor was simply explaining the dilemma the Monetary Policy Committee will face when it meets to set rates on 6 and 7 November.

"Whether or not to cut rates is still on the agenda and much will depend on its inflation projections when it finalises them next month," said Philip Shaw, at Investec, referring to November's quarterly Inflation Report.