Commenting on the Monetary Policy Committee (MPC) minutes published today by the Bank of England, David Kern, Chief Economist at the British Chambers of Commerce, said:
“These minutes point to an unwelcome shift towards a tighter monetary stance. On this occasion, three members voted for an immediate increase in interest rates and one of these supported an increase of 50bps. While the MPC is rightly worried about rising inflation and there is understandable concern that this will increase over the coming months, the factors pushing up prices in the short-term are outside the MPC’s control.
“Higher VAT, elevated commodity and energy prices, and increased utility rates are intensifying the squeeze on companies and individuals and will not be affected in the near term by higher interest rates. Our view remains that an early increase in rates, at a time when the government is tightening significantly fiscal policy, would increase the threat of derailing the recovery.”“Since there is no evidence that inflationary expectations are increasing and wage pressures are still modest, we believe that there is no need for the MPC to react immediately. While we accept that interest rates will have to increase later in the year, we believe the MPC should wait until the economy has absorbed the initial impact of the Government’s deficit cutting plan.”