BCC urges Bank to keep rates on hold this month

| March 8, 2011 | 0 Comments

Leading business group, the British Chambers of Commerce (BCC), is urging the Bank of England not to increase interest rates this week.

The Monetary Policy Committee (MPC) will commence its two-day meeting tomorrow and while many have called on the Bank to hike rates to combat stubbornly high inflation, the BCC is calling on the Bank not to risk economic growth by lifting rates.

Recent figures showed the economy contracted in the fourth quarter of 2010, suggesting the recovery is losing momentum.

While the Bank needs to be seen to be fighting inflation, it will be reluctant at this stage to lift rates when the recovery is fragile.

However, rate rises are on the cards this year and other leading business groups including the CBI and the NIESR expect three interest rate rises this year.

The BCC believes the Bank will lift the base rate in May but such a move would be “premature and risky”.

It is predicting rates will hit 1.25% by the end of the year.

Separately, accountancy firm PricewaterhouseCoopers is also asking the MPC not to raise interest rates before the economic recovery is secure - despite inflationary pressures.

Inflation is currently running at 4% - double the target but the Bank of England has said inflation will fall back to its target by 2012.

In the meantime, the BCC has downgraded its economic growth forecast for 2011 from 1.9% to 1.4%, citing the shock contraction in fourth quarter GDP as the reason.

However, it has lifted its growth forecast for 2012 to 2.3% from 2.1%.

The BCC has also increased its estimate for unemployment for early 2012 to 2.65 million, up from 2.6 million.

The Bank of England will announce its decision on interest rates on Thursday at 12:00pm.

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