Commenting on the Monetary Policy Committee (MPC) minutes published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“These minutes signal an unwelcome shift towards a tougher monetary stance. On this occasion, two members, rather than one, voted in favour of an immediate increase in interest rates. But the economic background has changed significantly for the worse since the meeting took place with a worrying decline in GDP in the fourth quarter of last year. Our view remains that an early increase in interest rates would be a major mistake which would increase the threat of derailing the recovery.
“While the MPC is rightly concerned about rising inflation, the factors pushing up prices are outside their control. Higher VAT, elevated energy and commodity prices, and increased utility rates would not be affected by higher interest rates. These factors increase the squeeze on business profit margins and on consumer’s disposable incomes.
“British businesses need a prolonged period of low interest rates to cope with the pressures resulting from the implementation of the government’s deficit cutting programme. But it is important that the recovery is not threatened. If the economy weakens the MPC must be prepared to consider a further increase in its quantitative easing programme.”