Reacting to today's publication by the Office for National Statistics (ONS) of CPI and RPI inflation figures for May 2007, David Kern, Economic Adviser to the British Chambers of Commerce (BCC), said:"Today's inflation figures for May 2007 show a further marked fall, at a slightly faster rate than market expectations. But, coming after yesterday’s very hawkish speech by Bank of England Governor Mervyn King, the new figures reinforce our deep concern that interest rates are set to increase significantly further over the coming months, irrespective of the expected fall in inflation towards the 2% target. The markets now signal an increase in Bank Rate to 6% before the end of the year, and the implications for business, particularly small firms, could be alarming.
"Annual CPI inflation fell from 2.8% in April to 2.5% in May, while RPI annual inflation eased from 4.5% in April to 4.3% in May. Annual CPI “core inflation” (excluding energy, food, alcoholic beverages & tobacco) has edged up marginally, from 1.8% to 1.9%, but remains below 2%."
David Kern concluded: "We understand the Bank of England’s concerns, but the Governor’s comments signal an unnecessary harsh determination to slow the pace of activity at all costs. We believe that perceptions of buoyant domestic demand, and strong business pricing power, may prove to be greatly exaggerated. While we acknowledge that further tightening may eventually be necessary, we urge the MPC to act with restraint and to avoid harmful and destructive overkill”