Fears that businesses will continue to struggle with high interest rates were fuelled by a member of the Monetary Policy Committee (MPC) today, as the Bank of England continues to refuse to make cuts. 

Writing in the Sun, Professor Tim Besley, a member of the MPC, defended the committee’s decision to hold interest rates this month at 5%, after a report by the British Chambers of Commerce (BCC) demanded a cut.

With inflation now reaching 4.4%, Besley said higher rates are necessary to prevent a repeat of the 1970s recession. “All being well, inflation will fall again next year and will be much closer to the 2% target by the end of 2009,” he said.

Besley, known as a hawkish member of the MPC, warned against wage increases, saying it would cause prices to rise again as businesses try to cover their higher costs. 

“This spiral has to be nipped in the bud and that means having interest rates at a suitable level until the threat of higher inflation has passed”.

In yesterday’s quarterly economic forecast by the BCC, David Kern, the group’s economic adviser, said: “Our view is that the threats to growth are more serious and more immediate than the risks of higher inflation”. 

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