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BCC warns against raising rates

Jul 16 2008

The monetary policy committee should not raise interest rates because of high inflation, the British Chambers of Commerce (BCC) says.

According to the Office for National Statistics, inflation based on the consumer price index rose to 3.8 per cent in June up from 3.3 per cent the previous month.

This is provoking suggestions that the Bank of England may increase interest rates to compensate for rising inflation.

David Kern, economic adviser to the BCC, says that the figures for June were worse than were expected, highlighting the 'acute pressures' faced by consumers and firms.

However, he comments, it would be a 'serious mistake' to raise interest rates.

Kern explains: 'The impact of higher interest rates on the real economy would be devastating, especially while all the evidence suggests that inflation will fall sharply later in the year and in 2009.'

According to speculation from the Bank of England, the consumer price index will return to the government's two per cent target at the end of the first quarter 2010.

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