Bank of England Governor Eddie George said yesterday that judging the balance of monetary policy in Britain was becoming increasingly difficult. He told leading economists that the economy would slow this year and the question was - would it slow fast enough to avoid inflation taking off?
Asia's financial crisis had muddied the waters further, Mr George said in a speech to the Society of Business Economists.
His remarks leave financial markets and homeowners on tenterhooks over the odds of a further interest rate rise.
"There is no doubt that we have now absorbed most, if not all of the slack in the economy," he said. "The judgments about the rate at which demand can grow, without it spilling over into inflationary imbalance, have become correspondingly more difficult."
The Bank's latest decision will be signalled on Thursday next week with City economists saying a quarter-point rise, taking base rates to 7.5 percent, is not out of the question.
Mr George said he would sit down first tomorrow with a group of experts to wade through all the evidence.
He said it was clear that the British economy had grown well above a sustainable rate and needed to be slowed. That should happen, he said, as building society windfalls faded away, the strong pound hit Britain's trade balance and the Asian financial crisis took its toll.
