Commenting on today’s MPC decision, David Kern, Economic Adviser at the British Chambers of Commerce, said:
"British business is not surprised by the MPC's widely expected decision today to keep interest rates unchanged at 5%. With annual CPI inflation set to increase shortly above 3%, most analysts have predicted correctly that the MPC would refuse to cut rates in June. We understand the critical need for the MPC to maintain credibility but the MPC cannot disregard the worsening threats to growth. The necessity to write a letter to the Chancellor should not be the overriding consideration for the MPC.
"The expected increase in UK inflation in the next few months is temporary. Indeed, much weaker growth would produce sharp falls in inflation later in the year and in 2009. Rapid falls in house prices, and worsening pressures facing the UK banking sector, will inevitably exacerbate the dangers of a downturn. British business has remained resilient so far, but the dangers are mounting. Recession can still be avoided. It is vital to underpin business and consumer confidence. Without an early interest rate cut, threats of a severe and needless economic downturn would spiral."