Following the publication today of MPC minutes relating to the 9 & 10 May meeting, David Kern, BCC Economic Adviser said:"The Minutes published today reinforce our concern that monetary overkill remains a distinct danger over the next few months. The May decision to raise interest rates to 5.50% was adopted unanimously, whilst the markets expected that up to 2 members would vote to keep rates unchanged.

"Some key sentences in the minutes signal a worrying shift to a more hawkish line. We are reminded that market expectations signal a high probability of another interest rate rise to 5.75% later in the year. It is also worrying that the possibility of an immediate 50 basis points hike in May was seriously discussed. There is now a higher probability that a move to 5.75% would be implemented in the next 2-3 months and even possibly even in June.

"British business accepts that the MPC must restore credibility in the anti inflation strategy - but higher interest rates are already causing considerable pain. The MPC must curb the upsurge in inflation, but it must avoid monetary overkill that may cause long-term damage to business.
David Kern concluded, "If an early move to 5.75% proves unavoidable, the MPC must make it clear that they would wait for a considerable time for more data to assess the impact of past increases in the interest rate, before contemplating further tightening. There is now a serious danger of over-reaction."