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Bank chief: Interest rates on hold to fight inflation
Joe Murphy, Political Editor26 Jun 2008
Bank of England governor Mervyn King signalled today that further interest rates rises were on hold.
He said he would do whatever it took to conquer inflation but would not rush into rate rises for fear of making the economic slowdown too severe.
He told MPs on the Commons Treasury Committee: "The economic slowdown will need to be sufficient to ensure that inflation does not persist above the target.
"But at the same time, we need to avoid a slowdown that is so pronounced that it would pull inflation down, not just to the target, but below." One Tory member of the committee, ex-minster Michael Fallon, said the Bank governor had "lost the plot" on fighting expectations of inflation.
Attacking his caution, Mr Fallon said: "You are paid to keep inflation under control, not to write letters!"
His comment referred to the fact that Mr King must write a letter of explanation to the Chancellor every three months that inflation is outside the target range.
Mr King replied crossly that there could be a "deep recession" if heavyhanded action was taken impetuously.
The Bank's governor said inflation would probably rise above four per cent this year but would be brought under control afterwards.
Members of the committee that sets interest rates agreed they should wait for more data before raising rates. Economist Tim Besley, adviser Kate Barker, deputy governor John Gieve and executive director Paul Tucker all said they had considered raising rates but decided against it.
City analysts said Mr King's comments implied there was no immediate risk of a rate rise but that any future change was likely to be upwards. Dominic Bryant, economist at BNP Paribas, said: "Overall, the comments from MPC members over recent weeks look like a recipe for the Bank to sit on its hands in the coming months."
Howard Archer, economist at Global Insight, said: "What is apparent from the testimonies, is that if the Bank of England does change interest rates in the near term, it will be to raise them."
