The Bank of England has been urged to avoid monetary policy heavy handedness this month, amid speculation of a further interest rate hike tomorrow.
The British Chambers of Commerce (BCC) has appealed to the MPC to keep the interest rate at 5.50% in June, claiming that there is no justification for a further rise this month.
David Kern, BCC economic adviser said: “We acknowledge that there is a distinct possibility that the UK Bank Rate may rise to 5.75% in June. But we strongly urge the MPC to keep rates on hold.
“There is a distinct danger that ratcheting up interest rates would worsen unnecessarily the pain facing UK businesses, at a time when inflation is set to fall sharply, and the pace of economic activity is set to slow.
“Given the acute pressures facing UK businesses, the MPC should allow more time for previous Bank Rate increases to have their effect on the economy, before tightening further.”
The Nationwide Spending Index, released today, suggests that previous rate rises are starting to take effect.
The Index fell five points in May, according to Nationwide, leaving it marginally below its three month average.
“The good weather in early May might have helped put consumers in a brighter mood, but people’s spending intentions responded sharply to the latest interest rate announcement,” said Fionnuala Earley, Nationwide’s chief economist.
“This may offer some comfort to the MPC,” she added.
However, the Index showed that overall consumer confidence has not been dampened by interest rate rises.
On the contrary, the Nationwide Consumer Confidence Index revealed that consumer optimism rose to an 18-month high in May, from 90 points to 99, reaching its highest level since November 2005.
© Crimson Business Ltd. 2007