Clamour For Higher Interest Rates Will Be Damaging For The Economy
13 June 2008 in Chamber News
Commenting on recent developments in the outlook for interest rates, David Kern, Economic Adviser to the British Chambers of Commerce, said:"The mood of the financial markets has changed dramatically over the past week and the futures market is now signalling a number of increases in interest rates before the end of the year. We believe this clamour for higher rates is totally unjustified and potentially very damaging for the economy."We appreciate that the MPC is facing a dilemma. There are signs that inflationary expectations are edging up and it is likely that the CPI inflation figure, due to be published next week, will trigger a letter from the Governor to the Chancellor. Against this background, we accept that the MPC cannot consider immediate interest rate cuts in spite of the worsening prospects for growth."However, it is important to avoid monetary overkill. The risks to growth are still greater than the threats to inflation. While the MPC is required to bring inflation back to its 2% target, its remit gives it latitude to do so in a fashion which does not damage the economy in the face of external shocks. We urge the MPC to maintain a cautious stance and reject any demands for immediate interest rate increases."