LONDON (AFP) – The Bank of England must "hold its nerve" and leave its key interest rate at a record low 0.50 percent or risk Britain's recovery from the financial crisis, a top panel of economists said on Monday.
The Ernst & Young ITEM Club, whose independent economists use the same forecasting model as Britain's Treasury, said the BoE should be patient since a current spike in inflation was set to fade out in the first half of 2012.
The central bank's Monetary Policy Committee (MPC) last week voted to hold its key rate at 0.50 percent for a 22nd month in a row, despite worries about rising consumer prices.
In its latest survey, the ITEM Club predicted that British annual inflation would peak at nearly 4.0 percent in February -- double the BoE's target rate.
"The Bank of England may come under mounting pressure to raise its base rate. However, ITEM is urging the MPC to hold its nerve, predicting that inflation will drop back to the two percent target in 2012 once temporary pressures fall out of the economy," it said short term personal loans.
Peter Spencer, chief economic advisor to the ITEM Club added: "It's vital that the MPC stands firm (...) A premature rate rise would boost the pound, weakening the UK's ability to increase its exports -- particularly into the emerging markets -- which we have long maintained hold the key to the UK's economic recovery."
Other economists have argued that high British inflation could see the BoE embark on a policy of rate tightening as soon as the second quarter of 2011.
British annual inflation spiked to 3.3 percent in November, up from 3.2 percent in October, on the back of soaring clothing, food and oil costs. Official data for December is published on Tuesday.
Economists urge Bank of England to keep low rates
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