The Bank of England’s Monetary Policy Committee (MPC) are expected to keep interest rates at the historic 0.5% low, in spite of high inflation impacting consumers and small businesses alike.
However, whilst many economists claim that the MPC will hold interest rates at theircurrent level, there are some experts who believe that a small hike in interest ratesshould not be ruled out.
With a number of Bank of England policymakers backing an increase in the base interest rate, experts such as Howard Archer, Chief UK and European Economist with IHS Global Insight, suggested:
“A small interest rate hike from 0.50% to 0.75% cannot be ruled out given three of the nine MPC members favoured an interest rate hike in February while there are indications that some other MPC members were close to voting for an interest rate hike in February.”
With a decline of 0.6% in the UK economy in the last three months of 2010 it is stillbelieved by many that interest rates will remain at the current level until at least August 2011. Philip Shaw at Investec, commented:
“While we suspect that the MPC will not wait until the end of the year to start tightening policy, we judge that it is more likely to wait until August rather than jumping in feet first in May.”
The British Chambers of Commerce also jumped into the debate with David Kern, the BCC’s chief economist, stating that any increase in interest rates at the moment would be detrimental to the already fragile economic recovery, stating:
“Premature interest rate increases risk derailing the recovery, and avoiding an economic setback must remain a top priority.”
Let’s all hope the Bank of England make the right decisions over the next few months, however, with growing inflation, their hands may be forced sooner than we think!