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Expert Believes the MPC Will Keep Interest Rates Steady
A senior economist has predicted that the Bank of England’s Monetary Policy Committee (MPC) will not increase interest rates this summer - good news for those making loan repayments trying to get out of debt.
New Star's chief economist, Simon Ward said that although the headline rate of inflation was at 3.3 per cent – considerably above the Government’s official target of 2 per cent - any increase in the base rate could turn “a painful economic adjustment into an unnecessary bust”.
Mr Ward noted that market analysts had previously predicted a 2.25 increase in interest rates this summer, but said that lower commercial liquidity and fewer prospects for companies to grow would make this impossible.
Earlier this month the MPC voted to keep rates steady at 5 per cent, despite some home loan lenders calling for interest rate cuts to boost the shrinking market.
Mr Ward said: "With inflation and inflation expectations rising, the MPC has little choice but to sit on its hands for the foreseeable future.”
He argued that the MPC made "poor” interest rate decisions in 2005 and 2006, but insisted that it should not now try and compensate for this with restrictive policies, as these would risk causing more economic damage.
Loan News posted on 23 June 2008
