Newspaper article The Evening Standard (London, England)

Doctor King's Cure for Our Inflation Disease

Newspaper article The Evening Standard (London, England)

Doctor King's Cure for Our Inflation Disease

Article excerpt


SOMETHING lit the fuse: what was it? From the calm upper room in the Bank of England where the monetary policy committee meets, the decision went off like a grenade. For Bank Rate to go up by a mere quarter-point might not, in itself, be regarded as shocking - or not by the standards of past times, when interest rates and inflation rates were in double figures - but it came as a shock, and was meant to.

This is not, nowadays, the Bank's style. Mervyn King, the Governor, says and repeats that its policy ought to be boring and predictable. On those terms, a decision to do nothing looked like a no-brainer. After all, what had the MPC learned since its last decision to do nothing, before Christmas? Only the usual muddling information from the High Street - as King likes to say, the Christmas message does not become clear until Easter.

Even in November, when the MPC last raised rates, Rachel Lomax, the Deputy Governor, preferred to wait and see. This time they could have waited for another month and seen what the next Inflation Report was going to tell them.

All those in favour of waiting and seeing? Carried?

Then we have time for a drink before lunch - but instead, the grenade exploded.

One theory, the simplest, is that the MPC had been slipped bad news about inflation. The rest of us get the numbers on Tuesday, but if the Consumer Prices Index shows inflation over 3%, King has to write to the Chancellor explaining what has happened and what he plans to do about it.

Even if it falls short, a pre-emptive strike would make sense. The more familiar Retail Prices Index shows inflation pushing 4%, and that, as the Bank surely fears, will find its way into wage claims.

For a warning, the MPC need have looked no further than the biggest workforce of them all, the National Health Service. …

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