Nothing to be gained by raising rates

Nia Williams

January 14, 2011

Commenting he said: “In the short term commodity price increases, especially oil, will exert further upward pressure on the CPI but because these inflationary factors are outside the MPC’s control, and wage inflation remains subdued, there is little to be gained by hiking Bank Rate, especially when that part of the increase in inflation due to the VAT rise will fall out of the year on year calculation in a year’s time.

“With wage inflation running well below CPI inflation the increased cost of living will have a similar impact on consumers to a rise in interest rates. Furthermore the budgetary measures already announced will have a negative effect on the economy in the new tax year. Thus an impact on consumers similar to that of a Bank Rate rise is being achieved without the rate actually increasing.

“As the Euro contagion spreads, even to the country hosting the EU seat of government, the negative impact on the economies affected of sorting out the mess must have some impact on the 50% of our exports which go to the rest of Europe. This, plus the austerity measures directly affecting the UK, leaves our economy too weak to sustain an interest rise yet. In fact, the possibility that the next move by the MPC will be to introduce QE2 looks as likely as an increase in Bank Rate.”

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