Rate setter warns on UK inflation

Posted by admin on 19 August, 2008 under Business news | Be the First to Comment

A member of the Bank of England’s rate setting Monetary Policy Committee (MPC) has warned that vigilance is needed to stop inflation touching 1970s levels.

Professor Tim Besley, who called for a rate rise in July, said prices rises “had to be nipped in the bud”.

Writing in the Sun newspaper he said: “It would be easy to give in and let inflation get out of control – that’s what happened in the 1970s.”

Inflation breached 20% in the mid-1970s and is currently at 4.4%.

The current UK figure is more than double the MPC target of 2% and reflects rising food, petrol and energy costs.

‘Living standard’

The Bank of England voted to hold interest rates at 5% for the fourth month in a row at the beginning of August.

Minutes of the latest meeting are due to be released on Wednesday.

“Everyone wants to protect their living standard. But if everyone does it, prices will just go up again” Professor Tim Besley

In July Prof Besley became the first member of the MPC to vote for a rate rise since July 2007.

“All being well, inflation will fall again next year and will be much closer to the 2% target by the end of 2009,” Professor Besley said in the article.

“But that will only happen if people don’t chase inflationary wage increases.

“Everyone wants to protect their living standard. But if everyone does it, prices will just go up again as businesses try to cover their higher costs.

“Then we’ll all be back to square one, but with inflation still high.”

News reported by The BBC