Business calls for interest rate hold

BUSINESS leaders have urged the Monetary Policy Committee not to raise interest rates today and put the economic recovery at risk.

The latest MPC meeting is taking place against a backdrop of both stubbornly inflation and disappointing growth figures.

With the bulk of the factors driving inflation external, many analysts believe raising interest rates would be a futile gesture although others consider such a move essential to maintain the MPC’s credibility.

Graeme Leach, chief economist at the Institute of Directors, said: “There is a very real possibility interest rates could rise at this month’s MPC meeting, with the decision on a knife edge.

“Obviously with inflation double the target rate and the oil price surging there is a very real challenge to the MPC’s credibility. But despite this threat, we think an interest rate rise at this stage in the recovery would be the wrong decision.

“Broad money supply growth remains anaemic and we are very concerned that hiking interest rates at such a time could further undermine the recovery.”

David Kern, chief economist at the British Chambers of Commerce, was more confident that the MPC will keep interest rates on hold.

He said: “We expect the MPC to keep interest rates unchanged in March. We continue to believe that interest rate increases should be postponed until later in the year, when the recovery will be more secure. But we do accept that an increase in rates is increasingly likely in the next two to three months.

“Given these circumstances, the main priority is to minimise the harmful effects of higher interest rates on the economy. Premature rate increases will affect growth and jobs, particularly in services.

“However if any rise in interest rates is modest it will not unleash a new recession, particularly if the Government uses the Budget to introduce growth-supporting policies.

“The continued uncertainty over interest rates risks undermining the confidence of both businesses and consumers. It is important to end this speculation before it causes serious damage.”