As expected the Bank of England’s Monetary Policy Committee (MPC) has decided to leave interest rates on hold and will not restart quantitative easing (QE) measures.
Although the decision was expected, the Bank is facing increased pressure as inflation remains above its target level. In November CPI (Consumer Prices Index) stood at 3.3%, significantly above the Bank’s 2% target. CPI has been at least 1% above the target level for the past 12 months.
Two members of the MPC have previously indicated that they favour a change to policy, Andrew Sentance has advocated a rate rise to try and push down inflation and Adam Posen has previously voted for additional QE measures. Both have been out voted by other members of the MPC.
Experts have warned that an increase to interest rates now, whilst potentially helping to reduce inflation, could act as a brake on the economy as it would reduce household spending at a time when VAT has just risen and petrol prices are at record highs.
Business welcomed the move to keep interest rates on hold, David Kern of the British Chambers of Commerce said, “Premature interest rate increases, while fiscal policy is still being tightened, risk derailing the recovery and could make it harder to implement deficit-cutting measures.”
Many experts, as well as the Bank of England, expect inflation to subside during 2011, however if this does not happen the calls for interest rates to rise are likely to grow.