Bank urged to keep interest rates low

Ahead of the Monetary Policy Committee's September meeting on Thursday, David Kern, chief economist at the British Chambers of Commerce, said that despite the recent upward revision in the economy's performance in the second quarter of the 2010, there was no room for complacency.

Falling house prices and further declines in bank lending to business were highlighted as potential risks in the third quarter of the year, while it was also noted that 'worrying signs' of a slowdown in the global economy would only heighten the uncertainty in the UK.

While acknowledging that the Government's tough deficit-cutting programme was necessary to stabilise the public finances, Mr Kern said the measures of 'unprecedented severity' would inevitably increase the likelihood of an economic setback.

"To counter the dangers of a relapse, it is vital that the MPC keeps interest rates as low as possible, for as long as possible," he added.

"Any thought of tightening monetary policy must be rejected until the recovery is more secure.

"If the economy shows signs of weakness, the MPC must be ready to increase the Quantitative Easing programme above £200 billion.

"Ensuring that the recovery is sustained must be the highest priority at the present time."

The low interest rate environment has generally been good news for homeowners, many of whom have reaped the benefits as the cost of mortgages has dropped.