Interest Rate Stability Vital To Sustaining Recovery
08 January 2007 in Chamber News
Commenting on the issues facing the MPC at its forthcoming meeting next week, David Kern, Economic Adviser to the British Chambers of Commerce (BCC), said: "Recent economic figures have been positive overall. But we strongly believe that sustaining and consolidating the UK recovery requires a period of interest rate stability. The markets expect that interest rates will be kept at 5% next week and we share this view. But the growing clamour for an increase to 5.25% in February is potentially dangerous and should be resisted at this stage. "The final GDP figures for Q3 2006, and the Chartered Institute of Purchasing and Supply (CIPS) activity index for December, have both been strong. But the CIPS manufacturing index for December was weak, and the inflation figures, though mixed, do not yet signal that higher rates are unavoidable. David Kern concluded: "The critical uncertainties relate to the next wage round early in 2007. Given the global uncertainties, we strongly believe the MPC should not consider a change in interest rates until trends in labour costs become clearer. The BCC's QES, due on 18 January, will also provide vital evidence.