Chancellor George Osborne said today there was no unspoken agreement with Bank of England Governor Mervyn King on keeping interest rates low.
"There is no tacit agreement at all. He is absolutely independent, as is his (Monetary Policy) Committee," Mr Osborne told Reuters in an interview in New Delhi.
Inflation has repeatedly surprised on the upside in Britain and is expected to remain well above target through next year. Yet the Bank of England has kept interest rates at a record low of 0.5 per cent and pumped £200 billion of newly created money into the economy.
One Monetary Policy Committee (MPC) member has said it is now time to raise interest rates to combat inflation.
However, the majority of the committee have voted to maintain the super easy policy, raising speculation that King has made some kind of deal with the government to keep rates low while fiscal policy is tightened severely to bring down a record budget deficit.
"I have every confidence in Governor King and the MPC. The governor was giving evidence to the Treasury Select Committee yesterday. He made it very clear he is very vigilant in the fight against inflation," Mr Osborne said.
Reuters
