MPC expected to hold rates

INTEREST rates are expected to remain the same when the Monetary Policy Committee takes its monthly decision on the base rate today as business leaders call for a cautious approach to the recovery.

The base rate has remained at 0.5% since March 2009 and the Committee is thought unlikely to alter that stance in the wake of last month’s emergency

Budget which announced major cuts in public spending. Only one member of the MPC voted to raise interest rates when the Committee met in June.

David Kern, chief economist at the British Chambers of Commerce, said: “We expect interest rates and quantitative easing to remain unchanged this month.

Given the risks still facing the economy, it is definitely too early to consider raising interest rates or reducing QE.

“In fact, if the economy shows signs of renewed weakness, the MPC should not hesitate to increase the amount allocated to the QE programme.

“Despite some recent and very welcome signs of improvement in the economy, growth is still weak – particularly in the service sector. The threat of an economic setback is more serious at this early stage of recovery than the risk of higher inflation, so a premature interest rate rise would have damaging consequences.

“The tough measures announced in the budget were well received by the markets and help to secure Britain’s credit rating. This should give the MPC room for manoeuvre, and by indicating that it plans to persevere with low interest rates, business confidence would be strengthened.”