Inflation up but MPC urged not to hike rates

The Bank of England’s Monetary Policy Committee has been urged to keep interest rates low despite a jump in inflation.

Office for National Statistics data shows the annual rate of inflation measured by the Consumer Prices Index hit 3.4% in March, up from 3% in February. Meanwhile, the Retail Prices Index, which includes mortgage payments, rose from 3.7% in February to 4.4% in March.

David Newnes, managing director of Your Move estate agents, says following the jump in CPI inflation there have been fears that interest rates are set to rise.

But he says: “It is crucial that the MPC holds its collective nerve and keeps interest rates low until the mortgage market recovery has hit its stride.”

At the MPC’s interest rate meeting on April 7 and 8 the committee voted unanimously to keep the base rate at 0.5% and maintain its £200bn quantitative easing programme.

Yet the minutes show alarm by some MPC members that market forecasts predict inflation will rise further.

The minutes say: “Given that a period of above-target inflation was in prospect at a time when monetary policy was exceptionally accommodative, this was a source of concern to some members.”

But Ray Boulger, senior technical manager at John Charcol, says: “The MPC will want to see what the new government’s tax policies are before changing the base rate. An increase in taxation has a similar impact on the economy to an increase in the base rate – both reduce people’s spending power.

“Similarly, a reduction in public spending reduces economic activity and so the more taxes are increased or public spending is cut the less need there is for a rate hike.”