Commenting on the choices facing the Monetary Policy Committee (MPC) at its July meeting (to be held on Thursday), David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“The current economic environment supports the case for maintaining interest rates at their current low level until at least the fourth quarter of 2011. Economic growth remains weak and there are worrying signs around the strength of the manufacturing recovery.
“The government’s tough austerity plan is intensifying pressures on both businesses and consumers. Although inflation will rise further in the short term, this is due to earlier increases in VAT and in energy prices. These factors are outside the MPC’s control, and higher costs will only worsen the squeeze on firms’ cashflow and on disposable incomes.
“Any increase in interest rates in these circumstances would risk triggering a setback. As long as wage pressures remain muted, and there are no signs that the UK is at risk of a wage-spiral, the MPC must hold its nerve. Indeed, if there are signs that our economy is weakening, the MPC should seriously consider increasing the QE programme above its current level of £200bn.”