The fact that the Bank of England resisted calls for a half-point cut in interest rates does not mean it is relatively sanguine about the prospects for the economy. On the contrary, the quarter-point cut suggests that it is very worried indeed. To cut rates at all, when the short-term outlook for inflation is so bad, implies a very gloomy view of economic growth.

Yesterday brought further evidence of inflationary pressures. A poll by the British Chambers of Commerce showed the highest proportion of companies planning to raise prices in more than ten years. A jump in import prices in February lifted the annual increase to 10.4 per cent, the highest since 1993.

The surge in the oil price and the continuing weakness of sterling means there is no respite in sight. But at the same time the outlook for growth is darkening by the day. Retailers meeting in Barcelona have been grumbling over the tapas with Sir Philip Green saying the market is as tough as he has seen it.

Against this background, the Bank was probably right not to go for a full half-point. That would have represented a big change in the gradualist strategy that the Bank has previously pursued.

It risked sending the markets a signal that the Bank knew something we don't about the economy and that it could no longer afford to be that worried about inflation.

That could easily have led to an increase in inflation expectations.

Perhaps the most worrying news yesterday was a survey of pay settlements that indicates mounting pay pressures this month.

The decision yesterday was a very difficult balancing act for the Bank. These trends suggest that next month's could be trickier still.

david.wighton@thetimes.co.uk

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