The Bank of England received support from leading economists to hold interest rates low until the economic recovery in the U.K. is able to overcome looming public spending cuts, according to Bloomberg. The Ernst & Young ITEM Club said the central bank must “hold its nerve” as inflation continues to increase, warning that the budget cuts could leave the economy vulnerable. The report comes after the Monetary Policy Committee voted to maintain interest rates at a record low at the latest meeting.
The Item Club projected that inflation is “likely to reach 4% this spring” but said it was imperative that the bank “keep base rates where they are until it is clear that the economy is taking the fiscal adjustment in its stride.” The Daily Telegraph adds the ITEM Club also sharply criticized Prime Minister David Cameron for “quite incredible and quite unprecedented” call for the central bank to raise interest rates. Inflation has been above the 2% target set by the BOE for 11 of the previous 12 months, which is seen as a threat to the credibility of the central bank.
Click here to read the story on the ITEM Club report from Bloomberg News.
Click here for coverage of reaction to Cameron’s comments from The Daily Telegraph.