But a new monetary policy committee at the Bank will set interest rates to achieve the target by

But a new monetary policy committee at the Bank will set interest rates to achieve the target by majority vote. The committee will consist of the Governor, his deputy, a new second deputy, two Bank executive directors, and four monetary experts appointed from outside the Bank.These four will be Bank officials, although not necessarily full time. They will, however, have to give up all outside commercial interests.The main concern City economists had about Mr Brown's move was whether these new appointments would be subject to political pressures. Simon Briscoe at Nikko Europe, said: "You could just get a range of Labour Party supporters making the judgement. That's not independence in any meaningful way."The committee, whose membership will be announced as soon as possible, will be accountable to the Treasury Select Committee of the House of Commons. Gavyn Davies, chief economist at Goldman Sachs and considered a front- runner for the new deputy governorship, said: "This is an incentive for the Treasury committee to get better. This will be the prime form of political accountability."The Chancellor's decision to raise interest rates on the Bank's advice yesterday, overshadowed by the more dramatic move, gained a more mixed reaction.Mr Brown admitted that the strength of sterling meant there was a policy dilemma, and said the Government wanted a stable and competitive pound over the medium term.Two surveys yesterday highlighted the dilemma.

The monthly services indicator from the Chartered Institute of Purchasing and Supply showed further strong growth in the sector leading to higher wage costs. But a CBI industrial survey showed that manufacturers in all but one region had had to cut their prices because the exchange rate was hitting export orders.The increase in base rates will also hit home owners.Mortgage lenders reacted within hours by increasing their rates by an average of 0.35 per cent to about 7.6 per cent.The move was justified by lenders as being almost inevitable after months of deliberately keeping rates down.Andrew Pople, managing director of the retail division at Abbey National, whose tiered rates rose by a similar amount, said: "An increase in base rates had been expected for some months ... and the proposed independence for the Bank may mean that further base rate changes are possible in 1997."But Mr Pople added that he did not foresee mortgage interest rare rises on the scale of the early 1990s during the present Labour administration.The Halifax, which also raised the cost of its mortgages by 0.35 per cent, stressed the rates increase would be welcomed by millions of savers, who outnumberered borrowers seven to one.Mike Blackburn, chief executive at the Halifax, said: "We do not believe this increase will halt the recovery. Mortgage rates are still at a relatively low level."Coventry Building Society also joined other lenders in raising its rates. Northern Rock stressed that the 6.09 per cent variable rates from its newly launched telephone arm would remain unchanged for the moment.Mr Brown said: "We are setting out a framework to end the boom and bust instability of recent years."Comment, page 21Main reformsBoE given responsibility for setting interest ratesGovernment can resume control of interest rates 'in national interest'Monthly meetings between Chancellor and Governor to be abolishedCreation of post of second deputy governor of BankNew Monetary Policy Committee createdCourt of Bank reconstitutedBoE's role as Government agent for sale of gilts transferred to Treasury.

Business leaders yesterday welcomed Labour's historic move to grant the Bank of England independence in setting monetary policy although there was not universal support for the latest base rate rise. Adair Turner, director-general of the Confederation of British Industry, said he very much welcomed the decision describing it as "a useful move in an intelligent direction". In a statement, the employers' organisation added: "Business has pressed for month-to-month interest rate decisions to be clearly free of political influence. This move will enhance the credibility of the UK's monetary policy, and over time lower the cost of finance for industry by reducing the risk premium in UK interest rates." The CBI said that the tightening in monetary policy represented by the quarter-point increase in interest rates was necessary against the background of strong consumer demand.

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