View from City Road: Market still listens to the wise men

Tim Congdon, the monetarist enfant terrible of the 'six wise men' who advise the Chancellor, yesterday triggered a flurry of speculation in the short-sterling futures market with a gloomy assessment of the economy and a corresponding upbeat view of interest rates.

In a fax to his institutional clients, Professor Congdon concluded that 'the key influences on future economic activity are pointing not towards an acceleration in the pace of growth but towards the risk of a slowdown in early 1995'.

He said it looked increasingly unlikely that inflation would rise in 1996 or 1997, let alone next year. 'There is even an outside possibility that the next interest rate move will be down, although the balance of probabilities must still be an increase in late 1995.'

Professor Congdon cited three pieces of evidence to support his case: the weak housing market, hints of weak August car registrations and slow growth in sales of consumer durables. And, as is his wont, he drew attention to subdued growth in bank and building society deposits and credit.

It is hard to see quite why the futures market should get excited by this assessment, as Professor Congdon has long been ultra-optimistic on inflation prospects. It is reminiscent of the fall in the pound after his fellow wise man, the Cambridge professor Wynne Godley, repeated a call for a massive sterling devaluation that he must have made on countless occasions in the past 20 years.

Events have gone Professor Congdon's way in recent months, but his long-term forecasts surely fly in the face of history. It only goes to show that membership of the 'wise men' still carries some cachet in the market. Rather more, in fact, than in the Chancellor's rooms at the Treasury.