GORDON BROWN dropped a heavy hint yesterday that he wants to see an increase in interest rates to lock in economic stability, even though inflation is way below the target set by the Government.
Addressing the British Chambers of Commerce annual conference, the Chancellor praised the Bank of England for its "decisive" action in raising rates pre-emptively twice in the past six months, adding: "I can assure you that having had the strength to make the difficult long-term decisions after 1997 we will continue to have the strength to take the long-term decisions that put stability first now and in the future, supporting our monetary authorities in the difficult choices they have to make."
His comments came as the International Monetary Fund gave a glowing assessment of the UK's prospects, forecasting that its economy would grow at 3.5 per cent this year - twice the pace of growth in the recession-bound eurozone and right at the top end of the Treasury's own once-derided projections.
A majority of City economists meanwhile said UK rates would need to rise in due course, even though the minutes of the latest meeting of the Bank's Monetary Policy Committee revealed that it voted eight to one to keep the cost of borrowing on hold at 4 per cent earlier this month. Only Andrew Large, one of the two deputy governors, voted for a quarter-point increase in rates.
The unexpectedly decisive vote eased fears of rapid rises in interest rates and caused the pound to fall. Some analysts said the language in the minutes of the April meeting was very "dovish" and could even undermine forecasts for an interest rate rise when the MPC meets early next month. However, the majority said rates would need to rise "in due course" but added that so far it did not appear necessary to raise them any faster than had been implied by the February inflation report. …