Byline: ANDREW ALEXANDER
SUPPORTERS of higher interest rates have not had much luck recently. The monthly minutes for December showed Bank of England Governor Eddie George telling Chancellor Kenneth Clarke that if he did not raise rates by 1/4pc at once, the Bank would have to press for a 1/2pc rise in January.
The intervening period saw a surge of statistics showing that the economy was not over-heating, after all, inflation was being well contained and the long-term indicators were good.
Now we are being told that `Treasury officials' as well as the Bank have been pressing the Chancellor to be tougher. So the Financial Times reveals.
No sooner is that story out than we have producer price figures which suggest the Chancellor got it right.
Input prices - the cost of raw materials - were expected to rise 0.3pc last month. In fact they fell 0.5pc. The annual rate stands at minus 6.2pc, the best since December 1986.
Factory gate prices, which were expected to rise 0.4pc, rose by only 0.2pc. The annual rate stands at 1.5pc, the lowest since October 1986.
For record lovers everywhere, it should be added that the `core' factory gate price index, which leaves out the more volatile food, drink, tobacco and petrol items, is now rising at an annual rate of only 0.6pc, the lowest level since August 1967.
True, these figures only apply to manufacturing and do not affect inflation in services. And much is due to sterling's irritating strength.
But they are still impressive and the chances of an interest rate rise before the election are decreasing.
The Bank of England and those unspecified `Treasury officials' insist that the money supply figures (or some of them) are the real worry. The unkind will say that their approach smacks strongly of the `bother the practice, what about the theory?'.
If the money supply was as reliable a long-term indicator as the Bank thinks, inflation would already be significantly higher than it is.
STERLING was not much affected yesterday by the weekend meeting of the G7 finance ministers. Their wish is to halt the rise in the dollar.
Whether their comments have much effect remains to be seen. Central banks have limited powers to move currencies these days.…