By Max Clarke

Commenting ahead of Thursday’s Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce, said:

“We expect the MPC to keep interest rates unchanged in January. But the recent worrying clamour for an early increase in rates is misguided and should be resisted. While the concern over inflation is understandable, there is no evidence for the view that early action is needed in order to restore the MPC’s credibility.

Last month's meeting of the MPC resulted in a near unanimous decision to keep interest rates at the 0.5% low first set in March 2009 in response to the escalating credit crisis.

“A premature increase in rates, while fiscal policy is still being tightened, would worsen pressures on individuals and businesses. This could risk derailing the recovery and make it more difficult to implement the necessary deficit-cutting programme.

“Higher UK interest rates will likely be necessary later this year. But it is important for the MPC to wait until the economy has absorbed the initial impact of the fiscal austerity plan.”

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