ITEM Club urges Bank to ‘hold its nerve’ on rates

ERNST & Young’s ITEM Club today urged the Bank of England’s Monetary Policy Committee (MPC) to “hold its nerve in a difficult year”.
 
Today’s quarterly forecast from the ITEM Club suggests that the UK faces a year of soaring inflation and warns that any increase in the Bank base rate would be premature and could endanger the economic recovery in what it said is going to be a difficult 12 months.
 
ITEM Club forecasts that the consumer price index (CPI) will peak at nearly 4% in February and that the Bank of England may come under mounting pressure to raise its base rate.
 
However, ITEM is urging the MPC to hold its nerve, and will predict that inflation will drop back to the 2% target in 2012 once temporary pressures fall out of the economy.
 
As the Government’s austerity measures start to take effect, inflationary pressures will be coupled with below-trend GDP growth.
 
The report predicts UK GDP growth of just 2.3% this year, rising to 2.8% in 2012.