Kern urges MPC to 'hold its nerve'

THE Monetary Policy Committee must "hold its nerve" on interest rates when it meets this week or risk derailing the recovery, the British Chambers of Commerce warns today.

The organisation's chief economist David Kern said although he accepted interest rates may have to rise later in the year the recovery was still too fragile to cope with a hike.

"The economy is not only having to cope with the VAT increase, but the tough deficit- cutting measures due in the next few months which will intensify the pressures on businesses and consumers," said Kern.

"As long as there are no signs that the UK is at risk of a wage-price spiral, the committee must hold its nerve."

Howard Archer, chief UK economist at IHS Global Insight, said the committee was likely to delay interest rate rises until at least August - and possibly as far ahead as November - due to concerns over the strength of economic growth.

"The case for holding fire now is supported by ongoing serious uncertainties and concerns about the underlying strength of the economy," said Archer.

"Even if interest rates do rise sooner rather than later, we forecast they will rise to one per cent by the end of 2011 and to two per cent by the end of 2012."