Kern urges BoE to keep interest rates low

A SENIOR economist has urged the Bank of England to avoid raising interest rates and keep the option open of pumping more money into the economy.

David Kern, chief economist at the British Chambers of Commerce, said the prospect of a further downturn should outweigh moves to tackle inflation. His concern comes ahead of this week's monthly meeting of the Bank's monetary policy committee.

"Although growth was stronger than expected in the third quarter of 2010, the economy is facing serious threats over the next year. The Monetary Policy Committee must accept that risks of a major setback will remain more prominent in the foreseeable future than dangers of higher inflation," he said.

"Once the tough deficit-cutting measures start to bite in 2011, there will inevitably be negative consequences for the cash flow positions of many businesses. While we support the government's determination to restore stability to our public finances, it is vital to minimise threats of a major downturn in economic activity.

"We urge the MPC to maintain very low interest rates for a prolonged period. British businesses will not be able to drive the recovery if interest rates start rising at a time when fiscal policy is being tightened. The MPC may be reluctant to increase the quantitative easing programme immediately, but there remains a strong case for considering an increase to 250 billion in the next few months."