Opinion is divided as to whether the MPC was right to leave interest rates at the present level. This Blog is of the persuasion that it has made a mistake.
The arguments for holding rates at this historic low are well known and well rehearsed. The problem is that our inflation rate is back to the old problem of the U.K. economy; we have a higher rate than our trading partners and our competitors. This means that our costs are rising faster than theirs and can only be resolved by further devaluation of the currency which in turn puts up the cost of raw materials and energy.
This is a bad place to be and sooner or later the Bank of England has to act, or risk losing the ability to control the issue by the use of interest rates at all. For the last five years inflation has been ahead of its target. Whatever may be the risks of a slowdown, possibly overplayed anyway, a signal that things will not be allowed to get out of control, by a quarter point rise now, would reassure that the Bank has the will and cohesion to act. The risks are considerable and growing, of a real inflationary surge, demanding much more punitive action. We have been there so many times before, I cannot think why it is we are drifting that way again.
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