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

“We expect the MPC to keep interest rates on hold at its June meeting. Signs of economic weakness, both globally and in the UK, reinforce the case for delaying rate increases until at least the fourth quarter of the year. We are hopeful that the balance of opinion within the Committee is moving in this direction.

“Higher utility prices are widely expected later this year which will inevitably lead to a hike in inflation. We expect to see CPI inflation peak at 4.9% in the second half of this year, with the average for 2011 at 4.5% at year end. However, raising interest rates in the face of higher utility prices would dampen demand. This, combined with the Government’s current austerity plan would increase the squeeze on businesses and consumers, and could risk a new recession.

“While increased utility prices and high inflation puts the MPC in an uncomfortable situation, countering this with a rise in interest rates would be a mistake. As long as wage increases remain subdued, the MPC should hold its nerve for the time being.”