By Max Clarke
The Bank of England’s Monetary Policy Committee (MPC), the body charged with regulating the country’s inflation by adjusting interest rates, will meet next Thursday to decide policy for the coming month.
In order to stimulate the economy by facilitating lending during the lack of credit availability, the committee have, for a record 24 month period, voted to adhere to the low rate of just 0.5%.
Currently a schism within the 7 strong committee has been forming between the hawks, who advocate curtailing inflation by raising interest rates; and the doves, who believe raising rates would have effects on the economy more damaging than high inflation.
Siding with the doves is David Kern, Chief Economist at the British Chambers of Commerce (BCC), who argues that a premature rise in interest rates will have serious and adverse impacts on Britain’s Private Sector recovery:
“The UK recovery is still very fragile. The economy is not only having to cope with the VAT increase, but the tough deficit-cutting measures due in the next few months which will intensify the pressures on businesses and consumers.
“With inflation at 4.4 per cent, and likely to rise further in the short-term, some MPC members may believe an early rise in interest rates will re-establish the committee’s credibility. We accept that higher rates will be hard to avoid later in the year, but the MPC must act with great caution. Raising interest rates at the same time fiscal policy is being tightened could risk derailing the recovery.
“As long as there are no signs that the UK is at risk of a wage-price spiral, the MPC must hold its nerve. Given the uncertainties facing the economy, the MPC should postpone interest rate increases until later in the year when the recovery is more secure. The worsening situation in the Eurozone, Japan and Libya could have a negative effect on the global economy, which reinforces the case for the MPC to wait.”