The Bank of England's Monetary Policy Committee (MPC) has voted to maintain UK interest rates at their all-time low of 0.5% (external website) for a 16th consecutive month, following the MPC's June 2010 meeting.While the MPC's decision to hold rates at this level is unsurprising, there is growing speculation that it will be forced to make at least a nominal increase in interest rates before 2010 is out.
The ongoing spike in inflation is the main factor exerting pressure on the MPC to raise interest rates. The May 2010 Bank of England Inflation Report said that the inflation spike is likely to be short-lived. However, minutes from the May 2010 MPC meeting (PDF format, 89.4K) suggest dissension in the ranks: some members are increasingly concerned that rising inflation risks becoming a threat.
This is a view shared by the Organisation for Economic Co-operation and Development (OECD).
The OECD has urged the MPC to raise interest by the fourth quarter of 2010 at the latest (external website), in order to combat inflationary threats, the Guardian reports. The OECD is reported to have said:
This is a view shared by the Organisation for Economic Co-operation and Development (OECD).
The OECD has urged the MPC to raise interest by the fourth quarter of 2010 at the latest (external website), in order to combat inflationary threats, the Guardian reports. The OECD is reported to have said:
In response to the expected gradual rise in underlying inflationary pressure as the recovery gathers pace and to anchor inflationary expectations, the normalisation of interest rates and the scaling back of quantitative easing should start during the second half of 2010", the OECD said in its economic outlook.Indeed, David Cameron appears to share this view, stating in a speech toward the end of last month:
We have seen a slightly worrying increase in inflation in recent months, so interest rates will be set to control inflation.Cameron's comments raise questions about the ongoing independence of the Bank of England in controlling monetary policy.
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