Carney warned against delay
Bosses urge Bank of England to raise interest rate
Minutes of the Bank’s Monetary Policy Committee meeting last month show there was a unanimous vote to leave the rate unchanged at 0.5% amid fears of stoking inflation.
Governor Mark Carney (pictured) has indicated that the rate may rise at the end of the year.
But the Institute of Directors’ chief economist, James Sproule, says the Bank needs to start “normalising” the rate now.
“Now, more than ever, is the time to start normalising interest rates. Extraordinary low interest rates were justified when our economy was in the doldrums. Now that is no longer the case, the Bank of England needs to reassess its policy,” he said.
“With the UK leading the G7 in terms of growth, and unemployment low and wages rising at their fastest rate since before the crash, our economy is well-placed to start bringing interest rates back to a more normal level.
“Inflation may be hovering around zero, but for monetary policy to be effective, interest rates need to be at a level where they can, if needed, stimulate the economy. Quantitative Easing should not be seen as a substitute for a long term policy on interest rates.”
Mr Sproule added: “The longer interest rates languish at a historic low, the harder it will be for Mark Carney to raise them ‘slowly and gradually’. The earlier the process of normalising rates starts, the smoother the course will be, and the longer the economy will have to adjust and prepare. If rates do not begin to return to a more sustainable level soon, the Bank of England will be defenceless when the next crisis strikes, and unable to support the economy by shifts in monetary policy.”
Calum Bennie, savings expert at Scottish Friendly said a rise by the end of the year was becoming increasingly likely.
“We are currently sitting at amber. The committee can see the road ahead is clear, but do not want to jump the light on a rate rise too early” he said.
“Concerns around the balance between external price pressure and domestic costs, as well as the fragility of the European market, is keeping the committee firmly in neutral at this stage.
“The Governor’s comments last week that interest rates might rise before the end of the year, when put into this context, now look even more likely to materialise. The question is whether economic growth – which is certainly recovering – is enough to support the increase in wages relative to productivity and can be sustained in light of current global risks.
“An interest rate move looks to be on the immediate horizon, around the end of the year. While rate rises will be modest, borrowers will still need to baton down the hatches and get prepared for rising costs. Those that can, should put money aside now and prepare. The winter is coming.”
David Lamb, head of dealing at the forex specialists Fexco, said: “Many Sterling cheerleaders had been prepared for an unchecked bull run in the event of a split MPC vote.
“And while some will feel a pang of disappointment that the committee’s hawks kept silent at the July meeting, there is every reason to suspect that this will be the last unanimous vote against an interest rate rise.”