Spending ’slows’ after rate rises
Bank of England Governor Mervyn King said there have been “tentative signals” of a slowdown in consumer spending after four rises in the interest rate in less than a year.
Mr King’s comments to the Treasury Select Committee at Westminster held out hope that interest rates may peak at 5.75% to meet the Bank’s inflation target following an expected rise from the current 5.5% next month.
They follow a survey from business lobby group CBI on Wednesday which showed the weakest levels of high street spending since November and a host of updates from several companies warning that recent hikes in rates were hitting their businesses.
But Mr King said that risks to inflation “were still for the upside”, with particular uncertainty over high levels of business pricing confidence, the rapid expansion of money, and the “buoyant” state of the world economy.
The Governor called last month for a rise in rates to 5.75% but was out-voted by his colleagues on the Bank’s Monetary Policy Committee (MPC) in a knife-edge 5-4 decision.
The MPC predicted in May’s inflation report that rates will need to rise to 5.75% to bring Consumer Price Index (CPI) inflation back to the Bank’s 2% target by the end of next year.
Mr King said the “bigger picture” of May’s inflation prediction was still intact but he added that it was a “genuine challenge” to predict the medium-term outlook for inflation because of volatility over energy prices.
He said: “That is why it should not be surprising that there have been differences of view among the MPC over the level of bank rate required to bring inflation back to the target and keep it there.”