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CBI Calls on MPC to Hold Interest Rates

In the Confederation of British Industry’s first monthly report on high street activity presented by Richard Lambert, who recently took up the position of the head of the organisation, he has made calls to the Monetary Policy Committee (MPC) to adopt a ‘wait and see’ approach to interest rates for the near-term.

Mr Lambert is certainly qualified to comment on the affairs of the MPC, as he himself was a member until March, when he stepped down due to a possible conflict of interests when he was offered the position as the head of the CBI.

There is a growing feeling amongst analysts that the Bank will opt to increase interest rates by a quarter percent at some time in the next few months, as the high street has been performing well, house prices have continued to show steady growth and the rises in fuel costs do not seem to have filtered through to put the brakes on consumer spending as was initially feared. All this, combined with the fact that the consumer price index (CPI) is currently running slightly above the two-percent target, means that a rate rise to put spending, and therefore inflation, in check is increasingly likely.

The CBI however feels that the current strong performance on the high street is an exception rather than the norm, with it’s members benefiting from the surge in consumer spending caused by the effects of the world cup, which helped with the sales of flat-screen televisions in particular, and the recent heat-wave which has seen drinks retailers benefiting greatly.

Retailers are expecting sales to moderate during August once the excitement around the world cup/heat wave combination dies down, which will tie up with wider pressures on the economy caused by only modest wage increases combined with rising levels of unemployment.

Commenting on the issue, Mr Lambert said that he felt there was no immediate need for the Bank to implement a rise in interest rates, saying ‘the Bank should be in no hurry to tighten monetary policy at this stage’. He did concede however that there may be need for a small increase in rates if inflationary pressures do continue to mount up.

Next month’s MPC meeting will be an interesting one, as it really is unclear as to whether or not interest rates will change, one thing is generally agreed on though – if rates do change they will be going up, but not by much.