ONE of the problems of the morally-correct decision of Chancellor Gordon Brown to take the politics out of the control of interest rates by handing the job to the neutral Bank of England was the risk of the Old Lady of Threadneedle Street having a single focus - on inflation rather than the broad economy.

Thus, with the underlying rate of inflation at 3.2 per cent, already running well ahead of the government's 2.5 per cent target, and upward pressure coming from average pay now increasing at 5.2 per cent, the surprise is that the Bank did not squeeze on interest rates once more yesterday.

For it has not been reluctant to increase it so far - with six interest rate rises since the election adding £1 a month for every £1,000 borrowed to the mortgage repayments of householders and making it harder for business to invest in jobs and expansion. Perhaps, then, the Bank is now taking a wider view of the economy and delaying a further dose of interest rate medicine because nothing tends to take the inflationary heat out of the economy more than a recession - and dare it risk accelerating the one now strongly forecast to be in the offing by hitting industry with dearer borrowing costs and sterling being pushed higher?

Thus, with a downturn apparent ought not the Bank of England to continue with the apparent caution it displayed yesterday by avoiding further tightening?

Certainly, it will require some encouragement and evidence that firms and wage-earners are displaying the same prudence over pay settlements, thus inserting some voluntary anti-inflation controls into the economy.

Meantime, the nervous question lurking behind the vexed problem of fighting the cancer of inflation while trying to limit the harmful effects of the interest rates medicine is whether the slowdown can be stopped from becoming a plunge.

Converted for the new archive on 14 July 2000. Some images and formatting may have been lost in the conversion.