Bank warned against ‘knee jerk reaction’ to inflation
Jan 20 2011
Bank of England warned raising interest rates would put pressure on businesses
The Bank of England has been urged not to raise interest rates and put further pressure on businesses in the wake of the latest inflation figures.
Earlier this week, official figures revealed that annual consumer price inflation (CPI) rose to 3.7 per cent in December from 3.4 per cent the previous month, almost double the Bank’s target of 2 per cent.
Andrew Smith, chief economist at KPMG in the UK, warns against a ‘knee-jerk reaction’ to rising inflation and says that raising the rate of interest now would hit borrowing costs for companies.
He adds, ‘Although Bank of England policy rates have come right down, the bank lending rates haven’t come down. So businesses are already paying a substantial premium relative to the policy rate.’
The British Chambers of Commerce (BCC) agrees that this is not the time for the Bank of England to be considering an interest rate rise, with chief economist David Kern insisting it would be a ‘mistake’.
Says Kern, ‘An early increase in rates will make no difference to inflation in the short term, but would risk derailing the recovery and would make it more difficult for the government to implement its deficit-cutting programme,’
Smith attributes rising inflation to the government’s decision to increase indirect taxes and the declining value of the pound.
‘The inflation rate is above target but that’s because of special factors, which you can expect to unwind over time,’ he maintains.
There are currently no comments on this article
Comments