Keep rates down, MPC urged

The Bank of England’s Monetary Policy Committee should avoid putting up interest rates in the next few months, despite the temptation to do so to curb inflation, it has been argued.

In its latest quarterly report, the Ernst and Young Item Club said the MPC could jeopardise the economic recovery with such a move by increasing the value of the pound.

Chief economic advisor to the Item Club Peter Spencer suggested the Consumer Prices Index (CPI) rate could leave the body “agonising” over whether or not to keep the 0.5 per cent base rate, which has been in place since March 2009.

Despite many upward influences on inflation creating such a “tense” situation, the MPC should “hold firm”, he stated.

Mr Spencer argued: “These are temporary pressures, domestic cost inflation remains low and CPI inflation will come back to heel in 2012 once the VAT increase falls out of the figures next January.”

A continued low rate of borrowing could help consumers avoid repossession by holding down the cost of mortgage repayments, while those trying to get debt free who own their homes may find lower housing costs make it easier to make cash available to reduce other borrowing.

Last week, the MPC revealed it was holding the base rate at 0.5 per cent for the 22nd month in a row.

In recent months the only member of the body to vote for a rise has been Andrew Sentance, who has consistently argued for a 0.25 per cent hike.

The minutes of the latest meeting will be published on January 26th, revealing whether Mr Sentance is still on his own in calling for a tighter monetary policy.

By Amy White