EEF urges Bank to keep interest rates on hold

| April 4, 2011 | 0 Comments

The Engineering Employers’ Federation (EEF) is urging the Bank of England’s Monetary Policy Committee (MPC) to keep interest rates on hold when it meets later this week.

The manufacturers’ trade body believes the economy is too fragile and the MPC should delay interest rate hikes until later in the year when the recovery is secure.

Lee Hopley, the EEF chief economist, comments: “The full extent of fiscal tightening has yet to make its mark and growth is dependent on a pick-up in private sector contributions from trade and investment.”

According to the EEF, the shock contraction in the fourth quarter of last year was a blip and the economy will recover in the first quarter.

Meanwhile, David Kern, chief economist at the British Chambers of Commerce (BCC), added: “Interest rates must remain on hold until much stronger evidence emerges of a healthier economy.”

Despite pressure to lift interest rates to combat stubbornly high inflation, the central bank has said it is reluctant at this stage to lift rates when the recovery is losing momentum.

Consumer Price Inflation (CPI) rose to an annual rate of 4.4% in February – the highest rate since October 2008.

The latest figures mean inflation is still way above the target of 2% – where it has been for more than a year.

The CPI inflation rate is a benchmark for the MPC but interest rates have been at the record low of 0.5% since March 2009.

Since June, Andrew Sentance, a member of the MPC, has voted for rates to be lifted. Fellow policy members, Martin Weale and Spencer Dale, have also voted for interest rates to be lifted at the last two meetings.

Many experts believe the Bank will leave interest rates on hold this month and await the outcome of the first quarter economic growth figures, which are due to be released on 27 April.

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