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Shadow MPC votes for rate rise

Shadow MPC votes for rate rise

Category: Economy

Updated: 09/03/2011
First Published: 08/03/2011

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The shadow monetary policy committee, a group of independent economists who attempt to second-guess the actions of the real Bank of England rate-setters, has voted in favour of a rise in interest rates later this week.

Following its latest gathering, the shadow committee voted by six votes to three to raise base rate to 1% when the official committee next meet on Thursday.

All three members who did not vote in favour of an increase wanted to keep rates on hold at 0.5%, the level at which they will have stood for two years if they do, in fact, remain unchanged.

Amongst the reasons for wanting the rate to increase now was the fear that by continuing to ignore the overshooting of the inflation target, any future action the Bank might take to control inflation could prove ineffective and have to be escalated further to compensate.

The Bank is supposed toset interest rates with a view to keeping inflation around the 2%mark in the medium term.

However, according to the latest official figures, inflation stood at 4% in January, double its target level, and has been significantly above target since December 2009.

Those who favoured leaving rates as they are expressed concern over the apparent weakness of the economic recovery.

Meanwhile, the British Chambers of Commerce (BCC) has predicted that interest rates will remain on hold until May, when a rise will then be sanctioned by the Bank.

"However, we are concerned that such a move would be premature, in view of the fragility of the recovery and the tough fiscal measures that will be announced in the Budget on 23 March," the group added.

The BCC also cut its forecast for economic growth in the UK in 2011 after output unexpectedly fell at the end of last year.

It now expects theeconomy to expand by 1.4% this year, down from its December forecast of 1.9%, but has raised its prediction for 2012 growth to 2.3%, up from 2.1%.

What will happen to the base rate this Thursday? We'll have the answer shortly after midday – join us to find out what the decision will mean for you.

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