Interest rate rises signalled
Spencer Dale , the Bank of England’s chief economist, has suggested in an interview with the Financial Times, that families should plan for interest rates to gradually rise over the next two years. He also sees a difficult outlook for the economy and said he favoured an immediate rise in interest rates, despite the fragile recovery. As a member of the Bank’s monetary policy committee, Mr Dale is responsible with his co-members, for setting interest rates. He is reported to have said, “I’m not particularly happy about voting to raise interest rates and doing it for nasty reasons,” referring to his concerns that higher interest rates were needed to control inflation rather than to promote growth, he went on, “I don’t take lightly the impact this could have on some families, but I think the cost to our economy as a whole – were inflation to persist for longer and our credibility start to be eroded – would be even worse. ” This marked the first time that the Bank has provided guidance on interest rates.
By way of personal comment, I believe Mr Dale is incorrect. Controlling inflation is all well and good where interest rate increases would inhibit demand leading to price reductions, but the current inflation is beyond the spending proclivities of buyers. Price increases due to tax rises, whether VAT or duty, wholesale energy prices and commodity price increases are not down to consumer spending habits, and the first priority must be to get the economy back on its feet.