Keep them down

A fresh increase in interest rates looks likely after the news of a 6.1% rise in average earnings in the year to February. This is way above the 4.5% that the Bank of England regards as consistent with its inflation target of 2.5%. Worse, it comes when the IMF and the independent National Institute believe the Budget's loosening of fiscal policy will raise City expectations that rates must rise. Even so, the Bank should think carefully before raising rates further. The earnings figures - compiled on a quarterly basis - still contain two months of inflated city bonuses and end-of-year overtime working. Given that higher rates induce an even more overvalued pound - thereby intensifying the unacceptable squeeze on industry - the Bank should wait to see whether earnings will come off the boil.

The Bank should also remind itself that its statutory duty is not to keep earnings down, but to keep the underlying rate of inflation at 2.5%. At the moment underlying inflation is only 2%. Technical factors may push it up next month - but there could also be downward pressures if oil prices fall. The chancellor would have made the Bank's job easier if he had tightened fiscal policy more than he did. But, given that practically everyone applauds the extra health spending, that would have meant higher taxes when the Treasury was wallowing in a £15bn surplus, even before counting the £19bn windfall profits from the auction of radio spectrum.

Gordon Brown is planning to use that money to reduce the national debt. But there is another use for it: selling sterling to bring down the value of the pound. Intervention to prevent a currency falling is usually a mug's job. But intervening to prevent it rising could be not only successful but profitable. The more Mr Brown spends "upstream" on intervention, the less he will have to spend "downstream" on bailing out Rover, farming, the coal industry and all the other victims of the overvalued pound.