The Bank of England is walking a very narrow line on monetary policy and a rise in interest rates may come sooner rather than later following the narrow vote to maintain interest rates at 0.25% and the onus is now on Government to take steps to bolster demand and investment. Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said:
“This week’s higher than expected inflation rate has undoubtedly been a significant factor in a much more evenly balanced decision by the Bank of England to keep interest rates on hold this month. It seems clear that as the Consumer Price Index edges towards 3%, there is a strong case being made for interest rates to rise in the near future to keep prices under control.
“The problem that the Bank of England has that there are as many threats in terms of raising interest rates as there are in letting the inflationary pressures run their course. Expectations remain that inflation will remain above target for much of the next three years, but whilst the rate of inflation is not high by historic standards, it remains a problem because it is outpacing wage growth which, in turn, is being held in check by low productivity.
“As we have been saying for some time, the Bank of England has very little left in its arsenal to stimulate growth and that is why it is Government that must now come forward for a plan to stimulate investment and demand and get our economy back on track.”