Leading article: Freezing interest rates is the right decision - for now

THE BANK of England's Monetary Policy Committee (MPC) has taken the right decision in refusing to lower the base rate of interest. The members of the committee have cut the rate five times in as many months, pulling the rate down from 7.5 to 5.5 per cent. Its members have taken advantage of the mixed signals from the economy - including the fact that, in the precise definition of the word, there has been no recession - to err on the side of caution and wait to see how the economy reacts to the stimulus given it so far.

This will take time. Eddie George, the Governor of the Bank of England, doesn't have a way with words. His recent quip about doling out aspirin to help the pain of manufacturing industry was hardly diplomatic. None the less, he was right in his argument. Some industrialists might think that the pain is already acute and that the Bank's medicine has an unacceptably high cost in terms of British jobs. No one denies that industry has suffered but the slow- down in the rate of growth has not scythed off as many blooms as feared. Business interests will always want lower interest rates, but that would not be good for the economy as a whole.

There is a specious argument that the MPC must wage a permanent revolution against interest rates while ours is 2.5 per cent above that of the euro- zone. The economies of France and Germany are in a different part of the economic cycle from that of the UK. Three per cent is a sensible rate as they pull out of recession. It would be folly for the UK while the rate of inflation is outstripped by the rise in wage settlements - which has always been the fountain of inflation in this country. Last week in parliament, Tony Blair made it obvious that the Government is keen to join the euro soon after the next election. While it would be better if sterling joined the euro rather quicker, this schedule gives plenty of time for the UK and euro economies to converge. In any event, interest rates are more of an effect than a cause in the economy, and as the UK gets on to a more even keel, they will slope off.

The French and German governments have recently pressured Wim Duisenberg, the President of the European Central Bank, to pull his punches in the fight against inflation. The benefit to Oskar Lafontaine, Germany's finance minister, is obvious, but Mr Duisenberg has wider responsibilities than Franco-German unemployment; he must establish the bona fides of the new currency. Once those are secure, euro-land can consider policies more oriented to growth.

Those who criticise the MPC's decision to freeze rates might bear in mind that, unlike them, the MPC knows what is in the Budget. The wisdom of its decision will be revealed when everybody is equally well informed.