The rate-setters are right to wait

The City got very excited last week that interest rates were going to rise again, and possibly next month.

Dealers interpreted some speeches from members of the monetary policy committee as a conspiracy by the MPC to subtly wander around the country giving the idea that they were now very worried about inflation and wages picking up as well as the housing market not cooling and would put rates up in March.

It is easy to see why they might think like that. The US Federal Reserve, the king of central banks, often uses subtle innuendo by its chairman, Alan Greenspan, or in the statement accompanying its rate decisions, to signal a change of bias towards rates or towards the speed with which monetary policy will be tightened or loosened.

But that is not how it works here. The Bank of England meets more frequently than the Fed, has expansive minutes of each month's meeting and has a superb quarterly inflation report that really tells you what it is thinking. It is forecasting that inflation may well rise above its 2% government-set target over the next two years and it is worried that wage growth is picking up too.

But we also know, from the minutes, from the February inflation report of two weeks ago and from expansive comments from the governor, Mervyn King, that it is nervous about consumer spending.

And Friday's GDP figures show us why. Household spending grew just 0.4% on the quarter, having slowed all through last year. That was the weakest since the first quarter of 2003. And other data showed mortgage approvals fell 43% from a year earlier, the biggest drop on record.

Small wonder that Rachel Lomax, deputy governor, said the Bank was watching consumption and housing market data very carefully but she said it would not be clear for some time what was really going on.

If the MPC was thinking of raising rates it would have done so this month. It is not impossible that it may do so next month but, as Ms Lomax indicated, the MPC is no hurry to do this until the data become clearer.