Rates to be kept down this summer

The Monetary Policy Committee (MPC) will not be upping interest rates this summer, an expert has forecast.

Despite inflation being currently well above the government’s two per cent target, New Star’s chief economist Simon Ward maintains any hikes would risk “transforming a painful economic adjustment into an unnecessary bust”.

He argues a deterioration in company liquidity and a poor growth outlook will prevent the two quarter-point rate rise previously predicted by markets.

“With inflation and inflation expectations rising, the MPC has little choice but to sit on its hands for the foreseeable future,” Mr Ward says.

He added the committee’s “poor decisions” in 2005 and 2006 should not be compensated for now with restrictive financial policies that risk causing more damage to the UK economy.

Earlier this month the Bank of England voted to hold rates steady at five per cent, despite calls from some mortgage lenders to revive the shrinking market with interest cuts.

© Adfero Ltd

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