The British Chambers of Commerce has asked members of the Bank of England’s monetary policy committee to think again before raising interest rates. Minutes of the Bank’s February meeting reveal that two members voted to increase rates immediately.

The Bank raised rates by 0.25 per cent last August and again in January. However, papers used by the nine-man committee reveal they believe that if rates remain at the current 5.25 per cent there is an 18 per cent chance of inflation exceeding 3 per cent within next two years.

The Bank has already said it expects inflation to rise above its 2 per cent target unless rates increase.

David Kern, economic adviser to the British Chambers of Commerce said: “We accept that inflation is a problem and the MPC may have to take further action, but we believe that the cumulative effects of three interest increases implemented since August 2006 will prove to be very significant.

A marked slowdown in the pace of growth is highly likely even if bank rate stays at 5.25 per cent. To avoid causing unnecessary damage to the economy it is important not to over-react. The MPC can afford to wait until trends in wage settlements become clearer.”

The MPC conceded that there has been little movement on pay settlements but warned that the labour market is tightening. The members believe there is limited spare capacity in the economy.

For more information please visit: www.bankofengland.co.uk/publications/minutes/mpc

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