Economy!!

It is frightening to think that we live in an age where it seems that the country is being driven by those who can shout the loudest and shout the longest providing sound bites for the press and applying pressure on politicians.

The publication this week of the inflation figures attracted just such a response from the city hoping presumably that press and politicians alike would ‘lean on’ the Bank of England. “Inflation must be brought under control, interest rates must be raised to do so”. It seems to me that many of those making such assertions are several places removed from the realities of every day business life and, in any case, are pursuing a very narrow agenda.

I cannot believe that anyone would argue against the view that inflation needs to be brought under control but I have serious concerns for anyone who suggests that interest rates should rise. Our current levels of inflation are not driven by domestic business nor do they result from consumers entering a new age of profligacy. Inflation is higher than we would like because indirect taxes and world commodity prices have risen. Quoting figures published by the BBC, if it were not for these factors, domestic inflation would be below target at 1.9%. It is difficult, therefore, to see what difference raising interest rates would have on inflation in any case.

In difficult economic times businesses and employees (except those working on London Underground) have displayed incredible levels of restraint, the former absorbing as much cost as it can and the latter resisting the urge to make impractical wage demands. Few would be able to continue to do so if the cost of borrowing rises too.

The last thing any business needs is an increase in borrowing costs (assuming of course it can get it) and an increase in the cost of mortgages, etc. hitting their employees and customers could be catastrophic.

As confidence in the economy grows I acknowledge that the Monetary Policy Committee will have to carefully manage a rise in interest rates but I cannot see that being justified in the foreseeable future. In the meantime if the powers that be are going to listen to those that shout too much I hope they listen to me.