THE Bank of England again said no to an immediate cut in base rates yesterday, but the City has mostly convinced itself that the Chancellor's relatively optimistic assessment of economic policy and the economic outlook in a radio interview yesterday
means another cut is not that far away. The Chancellor's apparent confidence that the economy is back on the right track could just also mean that he thinks that the 3 per cent cut in interest rates since last autumn is already enough to start the economy growing again. Indeed, if the Chancellor were a central banker rather than a politician, it would certainly imply that further reflation is the last thing the economy needs for a sound non-inflationary recovery. But the evidence from the front line does not support the Chancellor's claim.
The sharp fall in retail sales recorded last month merely cancels out the sharp rise in March, which in turn reflected the rush to buy items before the VAT price rose. Past evidence suggests that even if inflation does fall to 4 per cent, consumer demand will not recover.
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