THE rift between the British Chancellor of the Exchequer, Mr Kenneth Clarke, and the governor of the Bank of England, Mr Eddie George, was partly healed when Mr Clarke delivered yesterday's surprise quarter point rate rise, just months before a general election.
But while the rate rise enhanced the chancellor's reputation as a prudent manager of the economy, City economists said the Bank of England and the move towards greater central bank independence were the main victors.
Together, they have managed to push inflation up the political agenda, forcing Mr Clarke to raise the cost of borrowing to keep a check on price pressures.
Mr Clarke and Mr George fell out over the quarter point rate cut in June, the latter arguing the economy was in no need of extra stimulation.
The subsequent run of data proved the governor right and yesterday Mr Clarke was forced to reverse the cut, just four months later and well before its effects were fully felt in the economy.
Many economists thought Mr Clarke would bow to political pressure and refuse to raise the cost of borrowing before the election whatever the inflationary pressures.
"But the new policy framework is clearly acting as a constraint and Mr Clarke is listening to the governor's advice," said Mr David Mackie, UK economist at J.P. Morgan.
