Too fragile for a rise?

Consumers face a number of different problems at present when it comes to their finances. For just about everyone, inflation is a worry and for some, paying the bills is hard because of this squeeze and changes in taxation and benefits.

Alongside this, many people also have the issue of possible repossession if their mortgage rates rise and this group may have very mixed feelings about any change in the base rate.

Higher rates may help to curb Consumer Prices Index inflation from its current 4.4 per cent rate and therefore ease the pressure of rising prices, but equally the impact on mortgage payments could tip some over the edge.

These issues may be high on the list of considerations from the Bank of England’s Monetary Policy Committee (MPC) as it meets this week, alongside a wider reflection on the state of the economy.

On this latter point, economic advisor to the British Chamber of Commerce David Kern has urged the MPC to “keep its nerve” and retain the 0.5 per cent rate, to protect a “fragile” recovery.

He added: “The MPC should postpone interest rate increases until later in the year when the recovery is more secure. The worsening situation in the Eurozone, Japan and Libya could have a negative effect on the global economy, which reinforces the case for the MPC to wait.”

Such thoughts may indeed be uppermost in the mind of the MPC when it makes its decision, although the last two meetings have seen three members convinced of the strength of argument for a rate hike.

But a Bloomberg poll last week found all 57 economists questioned believed the rate will not change, which would suggest the majority on the decision making body will exercise the “nerve” Mr Kern advocates.

By Amy White