Interest rates must stay low despite stubborn inflation

Commenting on the July inflation figures, published today by the ONS, David Kern, Chief Economist at the British Chambers of Commerce (BCC), said:

“Headline CPI inflation fell slightly in July, which was in line with expectations, but it remains stubbornly high. Nevertheless, it would be wrong to overreact to these figures by raising interest rates or withdrawing the support provided by quantitative easing. While the Monetary Policy Committee cannot ignore the risk that inflationary expectations might worsen, there is no sign of this happening at present.

“With earnings growth remaining below inflation, these figures signal a further squeeze on disposable incomes. This will inevitably dampen demand and reinforce the pressures that will build up as a result of the Government’s deficit-reduction programme. If the MPC was to consider tightening monetary policy in these circumstances, risks of an economic setback would increase. Against this background, we urge the MPC to persevere with the current expansionary approach. The balance of probabilities still suggests that inflation will fall sharply over the next year.”

Ends

Media Contact:

Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk

Notes to Editors:

CPI inflation eased to 3.1% in July from 3.2% in June.

RPI inflation slowed to 4.8% from 5% in June.

The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people