Commenting upon the decision by the MPC not to raise interest rates David Kern, Economic Adviser to the British Chambers of Commerce, said:
“British businesses will breathe a sigh of relief with the MPC's decision today. The recent clamour for early interest rate increases has been based on exaggerated perceptions of growing business pricing power. We are pleased that the MPC has rejected the misguided calls for immediate monetary tightening. Coming so soon after the damaging Budget increase in the Small Companies’ Rate from 19% to 22%, an increase in interest rates at this time would have posed new and unpredictable threats for British business. The cumulative impact of three Bank Rate increases announced since August 2006 has not yet been fully felt.
"We acknowledge that inflation is still a potential UK danger, and the MPC may have to take further action. CPI annual inflation rose to 2.8% in February, and there are still uncertainties relating to the current wage round. But there are powerful arguments suggesting that demand pressures will slow and inflation will decelerate. With average earnings growth below RPI inflation, UK disposable incomes are being squeezed and spending will inevitably decelerate. Moreover, the recent rise in sterling is exerting a dampening effect on economic activity and on inflation.
David Kern concluded: “It is particularly important to avoid damaging monetary overkill at a time of worsening global dangers, particularly heightened geo-political tensions in the Gulf, and new risks of US slowdown triggered by the downturn in the housing market. Given the underlying uncertainties, there are powerful arguments for the MPC to wait, so as to avoid damaging the economy unnecessarily.