Business chiefs urge Bank to keep interest rates on hold

Published on Wednesday 1 September 2010 18:04

BUSINESS leaders will this week call on central bank policymakers to maintain their ultra-low interest rate stance and be ready to print more money if the economy takes a turn for the worse.

The Bank of England is widely expected to hold rates at their historic low of 0.5 per cent when it concludes its September meeting on Thursday.

Members of the Bank's nine-strong Monetary Policy Committee (MPC) face a tricky balancing act, with raised fears of a return to recession on the one hand and increasing inflationary concerns on the other.

The UK economy roared ahead at its fastest pace for nine years between April and June, notching up growth of 1.2 per cent - double what most analysts had been forecasting.

But the exceptional growth is likely to prove a one-off caused by a rebound from weather-related disruption in the first quarter, and the key question is how fast growth slows thereafter.

The British Chambers of Commerce said that despite the upward revision to GDP in the second quarter "there is no room for complacency".

Warning of the dangers of a major economic setback from efforts to slash public spending, the BCC demanded interest rates be held "as low as possible, for as long as possible".

David Kern, the organisation's chief economist, said: "Any thought of tightening monetary policy must be rejected until the recovery is more secure.

"If the economy shows signs of weakness, the MPC must be ready to increase the quantitative easing programme above 200 billion."

Howard Archer, chief UK economist at IHS Global Insight, the forecasting group, said: "Monetary policy will need to remain loose for an extended period."