MPC must resist clamour for early rate rise

9th January 2014

ommenting on the interest rate decision announced today by the Bank of England's Monetary Policy Committee, David Kern, Chief Economist at the British Chambers of Commerce (BCC) said:  -While the decision to hold interest rates and QE was widely expected, it is concerning that there is increased clamour in the media and among some city analysts for an early increase in interest rates.

We believe that the MPC's forward guidance strategy continues to be beneficial for UK businesses. Although economic growth is stronger than most people envisaged a few months ago, there is still no evidence that the time is ripe to tighten policy, given that earnings are below 1% and inflation at just over 2%.   -Although the MPC has not issued an accompanying statement, it has said in the past that the 7% threshold is not a target and is unlikely to trigger early interest rate rises. Businesses are also concerned with inflation, so the MPC must remain committed to its 2% target. It is important to avoid premature steps that could snuff out the recovery before it is on firmer ground.