Commenting on today’s Monetary Policy Committee (MPC) decision, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
"The MPC's decision to leave interest rates and the quantitative easing programme unchanged this month was widely expected. While we support this decision, we are concerned around growing demands for an early increase in rates. This introduces a regrettable element of uncertainty about future policy at a time when the economy is still facing major risks.
"Fears around inflation are understandable, but the MPC must not overreact. As long as wage increases remain modest, and disposable incomes continue to be squeezed, it remains likely that the surge in inflation will be reversed. We expect to see sharp falls in the final months of 2011 and in 2012."Pressures on businesses and individuals will begin to intensify over the coming months. A premature increase in rates, at a time when fiscal policy is still being tightened, will threaten the recovery. It is likely that higher interest rates will be necessary later this year - but it is important for the MPC to wait until the economy has absorbed the initial impact of the austerity plan.”