By Francesca James

Commenting on the choices facing the Monetary Policy Committee at its July meeting this Thursday, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“While the recent tough Budget was an important step towards stabilising our public finances and protecting our credit rating, its scale and severity inevitably increases the danger of an economic setback. Negative developments in the eurozone, and signs of a slowdown in the US, only add to the obstacles facing the UK economy.

“Against this uncertain background, it is vital that the MPC perseveres with expansionary policies. We were disappointed and concerned that one MPC member voted for an interest rate increase at its last meeting. Raising interest rates too soon would be a major mistake. It would heighten threats of a major setback, which are particularly acute at this early stage of the recovery.

“Any thought of tightening policy must be rejected until the recovery is much more secure. While the MPC cannot ignore the longer-term risks of inflation, the positive market reaction to the Budget gives the Committee ample room for manoeuvre. Countering recessionary threats, and making it possible for businesses to drive recovery, must be given the highest priority.”