by Richard Barley
Wall Street Journal
March 9, 2011
Notice the difference.
The European Central Bank has gone from a standing start to rate-increase readiness in just three months after inflation moved above target. The Bank of England is still uncomfortably split over policy even after 14 consecutive months of above-target, and rising, inflation. This disconnect is likely to persist for a while: The ECB and BOE face a common problem but different risks.
The U.K. economic recovery is shaky. Manufacturing and construction look buoyant, but the much larger services sector remains sluggish. Retail sales slumped in February and the housing market remains fragile. The British Chambers of Commerce has cut its 2011 growth forecast to 1.4% from 1.9%.
By contrast, the euro-zone recovery is broadening from Germany and the sovereign-debt crisis hasn't weighed on aggregate growth. That gives the ECB greater confidence in seeking to pre-empt second-round inflation effects, which crucially have yet to show up in either the euro zone or the U.K.
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