Commenting on the inflation figures for January, published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:
“The increase in inflation to 4% was exactly as most analysts expected, and there was even some relief in the markets that the outcome was not worse. The present situation is uncomfortable for the MPC. But, in the face of higher taxes, increased utility bills, and surges in food and energy prices, it is still likely that consumer price inflation will increase towards 4.5% before it stabilises.
“We believe that a premature hike in interest rates would make no difference to inflation in the short-term, but would put the recovery at risk. It would also make it more difficult for the Government to implement measures aimed at cutting the deficit. Raising interest rates at a time when fiscal policy is being tightened will heighten pressures facing businesses and individuals. Over the medium term, the MPC is right to assume that inflation is likely to fall gradually towards its 2% target.
“We believe that interest rates will probably have to rise later this year, but it is critical that the MPC waits until the initial impact of the austerity measures have been absorbed. Considering an increase in interest rates before the middle of the year would be a mistake.”