Morning:
14°c
Barker warning on damage of rate rise
14.07.08
A key member of the Bank of England's monetary policy committee today dampened speculation that interest rates are set to rise.
Kate Barker, who has been on the MPC since 2001, warned that if rates remain too high for too long it could damage the economy.
Between December last year and april the Bank cut rates three times to 5%. But with inflation soaring, fears are growing that it will be forced to raise rates.
But Barker said today: "The mistake we could make, and we are all worried about this, is of holding policy too tight, and the economy weakening more than is necessary to get inflation back on target."
Inflation hit 3.3% in May but figures to be published tomorrow are likely to show it is approaching 4% - double the target set by the Government.
The Bank is desperate to return it to target and believes that some slowdown in the economy is needed to bring it back under control.
"The very worst mistake we could make, very clearly, is to allow inflation to get out of control," said Barker.
"We could avoid that in the short-term by holding policy really tight and really acting as inflation nutters. But we are not doing that."
