Call for Bank of England to raise interest rates - Business News - Business - The Independent

Call for Bank of England to raise interest rates

The Bank of England should begin hiking interest rates in the second half of this year and lift borrowing costs to 3.5% by the end of 2011 to control rising inflation, an economic report warned today.

The Organisation for Economic Co-operation and Development (OECD) said in its latest outlook that while record low interest rates had been "appropriate" so far in the recession, the Bank must act soon to return rates to normal.

It added that even with the temporary pressures of the VAT rise and higher fuel prices taken into account, rate action needed to be taken to see off the threat of inflation.

The OECD said: "Notwithstanding the temporary nature of these price developments, the gradual drift up of some measures of inflation expectations implies a need to increase interest rates earlier than previously thought and no later than the last quarter of 2010."

It is predicting economic expansion of 2.2% in the UK this year, rising to 2.6% next year, but said growth could stall in the second half as consumers come under pressure.

Inflation has been stubbornly above-target in the UK, hitting a 17-month high of 3.7% in April.

But the Bank of England has repeatedly predicted a return to the 2% target this year and indicated it was in no hurry to increase interest rates or wind down its £200 billion money supply boost.

The OECD has changed its view on rates, having said last November the Bank should not start tightening monetary policy until 2011.

However, it acknowledged in today's report that hefty austerity measures by the new UK Government could "leave room" for more gradual rate rises.

Its forecast for UK gross domestic product (GDP) growth has also changed since last November's report, upgraded from an original prediction for expansion of just 1.2% this year.

The OECD said: "The recovery is gaining traction, supported by improving financial conditions, rebounding exports and a temporary surge in stockbuilding.

"High inflation and lingering effects from the credit crunch, together with necessary fiscal tightening, will nevertheless keep growth subdued in 2010.

"The recovery will gain momentum in 2011 when household consumption and business investment start to grow more robustly."

Official figures yesterday revealed the UK economy grew slightly faster than first estimated in the initial three months of 2010, with GDP expansion upgraded to 0.3% from 0.2%.

The OECD said UK unemployment levels would also peak in mid-2010 and ease back slowly.

However, it said action to reduce Britain's deficit must be made swiftly and urged the new Government to declare detailed measures soon.

"Return to fiscal sustainability requires further consolidation, which should be announced early and supported by a strong and credible medium-term fiscal framework," said the OECD.

It added that a "fully articulated fiscal plan would help the recovery" by easing market concerns and dampening inflation expectations.

Today's report included similar messages for governments worldwide, with calls to tighten monetary policy and speed up austerity measures.

It also recommended that the US, Canada and European Central Bank should start to increase rates this year.

The May forecast upgrades growth prospects for a raft of countries, with the US expected to see activity rise by 3.2% this year and in 2011 compared with 2.5% and 2.8% previously.

Overall, it raised 2010 and 2011 GDP forecasts for the OECD countries by 0.8% to 2.7% and 2.8% respectively.

News
Paper trail: the wedding photograph found in the rubble after 9/11 – it took Elizabeth Keefe 13 years to find the people in it
newsWho are the people in this photo? It took Elizabeth Stringer Keefe 13 years to find out
Arts and Entertainment
Evil eye: Douglas Adams in 'mad genius' pose
booksNew biography sheds light on comic genius of Douglas Adams
Sport
FootballFull debuts don't come much more stylish than those on show here
News
i100
PROMOTED VIDEO
Life and Style
Kim Kardashian drawn backlash over her sexy swimsuit selfie, called 'disgusting' and 'nasty'
fashionCritics say magazine only pays attention to fashion trends among rich, white women
Arts and Entertainment
TVShows like Agents of S.H.I.E.L.D are little more than marketing tools
Arts and Entertainment
Hit the roof: hot-tub cinema east London
architectureFrom pools to football pitches, rooftop living is looking up
Travel
travel
News
The ecological reconstruction of Ikrandraco avatar is shown in this illustration courtesy of Chuang Zhao. Scientists on September 11, 2014 announced the discovery of fossils in China of a type of flying reptile called a pterosaur that lived 120 millions years ago and so closely resembled those creatures from the 2009 film, Avatar that they named it after them.
SCIENCE
Life and Style
tech
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Matisse: The Cut-Outs exhibition attracted 562,000 visitors to the Tate Modern from April to September
art
Life and Style
Models walk the runway at the Tom Ford show during London Fashion Week Spring Summer 2015
fashionLondon Fashion Week 2014
News
Kenny G
news
News
peopleThe black actress has claimed police mistook her for a prostitute when she kissed her white husband
Life and Style
techIndian model comes with cricket scores baked in
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SQL Developer - Watford/NW London - £280 - £320 p/d - 6 months

£280 - £320 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Senior BA - Insurance **URGENT**

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Training Coordinator / Resource Planner - City, London

£35000 - £38000 per annum + Benefits: Ashdown Group: Training Coordinator / Pl...

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£400 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Day In a Page

Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam
'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

'She was a singer, a superstar, an addict, but to me, her mother, she is simply Amy'

Exclusive extract from Janis Winehouse's poignant new memoir
Is this the role to win Cumberbatch an Oscar?

Is this the role to win Cumberbatch an Oscar?

The Imitation Game, film review
England and Roy Hodgson take a joint step towards redemption in Basel

England and Hodgson take a joint step towards redemption

Welbeck double puts England on the road to Euro 2016
Relatives fight over Vivian Maier’s rare photos

Relatives fight over Vivian Maier’s rare photos

Pictures removed from public view as courts decide ownership
‘Fashion has to be fun. It’s a big business, not a cure for cancer’

‘Fashion has to be fun. It’s a big business, not a cure for cancer’

Donatella Versace at New York Fashion Week