Urgent rethink on rate policy needed?

Urgent rethink on rate policy needed?

	Published : Mon, 20 Feb 2006 18:10 By : Amy Watts Print this Story

LONDON - Contrary to all prevailing perceptions and predictions, the Bank of England seems to think that the economic growth will be boosted as consumer activity is apparently on the rise. Monetary Policy Committee Member Kate Barker was quoted as saying that this growth would be favorable.

"Forecasts suggest a growth to 3 percent, which is a long way from a recession. The main thing that has encouraged us is the short-term pick-up in the consumer sector," Barker was quoted as saying on the Evening Gazette in its Friday editions. Even the quarterly Inflation Report released by the bank envisages economic growth even though all indicators seem to point otherwise.

"The outlook described in today‘s report contains a benign central view of steady growth with inflation remaining close to target over the forecast period," Bank of England Governor Mervyn King stressed. However, the fact remains that growth at the moment is in stagnation with retail sales plummeting and manufacturing suffering. In such a scenario, the Bank of England has to heed to the widespread demand to cut the interest rates.

On the other hand though, house prices and property valuations or at least asking prices remain too high, a rate increase could put house price increases in check or even lower them, which is needed for first time buyers to be able to afford to get back into the market in any number.

Analysts however feel that any delay in dropping rates would prove to be harmful to the country's economy. For the first time, the Consumer Price Index (CPI) slipped to 1.9 percent last month as opposed to the Bank's stated target of 2 percent. Given this picture, the Bank has to take the pleas of various businesses into consideration, but somehow, it seems to be missing the point altogether.

The MPC is hoping for a massive pick up in business investments this year, but that is only really possible when ideal conditions exist. That the global economy is growing from strength to strength, while the UK's is languishing at the bottom is a telling fact that could not have escaped the Bank's attention. The need of the hour is an urgent rethink on policy, but is the MPC listening?