ITEM Club cautions against raising interest rates prematurely

However, in its latest quarterly forecast, the Ernst & Young ITEM Club cautions that raising rates prematurely – before there is any reliable evidence that the corporate sector recovery is fully under way – could have disastrous consequences.

ITEM remains of the view that inflation will naturally ease next year, once the VAT hike and other temporary effects have passed out of the index.

Peter Spencer, chief economic advisor to the Ernst & Young ITEM Club, said: "A rate rise would be perverse at this stage, merely adding to the already intense pressure on UK consumers, as well as increasing the RPI and risking a rise in wage settlements. Companies hold the key to UK growth, and a premature rate rise could easily break the key in the lock.”

He added: "Unlike the European Central Bank, the Bank of England hasn’t yet seen any core strength in the UK economy. Manufacturing seems to be performing well, but is too small to get us very far.

"Our forecast assumes that the MPC will keep interest rates on hold until November this year – when a revival should be evident. The economy will be much stronger next year as inflation falls back and the consumer begins to enjoy the recovery."

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0 thoughts on “ITEM Club cautions against raising interest rates prematurely

  1. Ellen

    Almost zero interest was a temporary and emergency measure that was put in place over 2 years ago. It has now become entrenched policy which, according to some, cannot be done without. That alone should tell you that it is time to raise interest rates if people are relying on crisis measures for their day to day life. QE and zero interest rates are the main reasons why inflation is running at over twice its target and, despite a small fallback last month, while all this loose monetary policy continues, inflation will continue to rise.