WHY WE RAISED THE COST OF BORROWING
Western Daily Press 27th. September 2006
The Bank of England raised interest rates last month partly because of a welcome upturn in investment by UK firms, deputy governor Sir John Gieve admitted last night.While the Bank’s rate-setting monetary policy committee (MPC) considers a range of factors such as the UK labour market and the global economic outlook, Sir John said the MPC was concerned that higher business spending could have a knock-on effect on inflation.
And he added that if the trend - though welcome after many years of under-investment - continues it could add to pressure on the MPC to raise rates again.
Most economists expect the cost of borrowing to rise again before the end of the year, taking rates to five per cent.
The Bank’s last inflation projection, made in August, showed it rising from its current 2.5 per cent at the end of this year and not falling back to the Bank’s two per cent target until 2008.
But Sir John, who became deputy governor in January, told an audience of business leaders and academics: “In practice the real world rarely does follow the central forecast precisely.”
He said the decision was taken one month at a time on the data available.
Sir John, speaking at the University of the West of England in Bristol, said business investment had lagged other advanced countries for decades and had been the victim of the UK’s boom-and-bust economics.
But stability since 1992, when the Bank was first set an inflation target, “looked like a golden age” for anyone who had lived through the recessions of the 1970s and 1980s, he added.
Earlier Sir John, a former high ranking civil servant, visited the Airbus plant at Filton and brewer Courage’s Avonmouth depot.
Your Views
Dear Editor,
This is clearly a ‘Political’ Statement from a Civil Servant with an ‘Agenda’. The Golden Age was forcast by Michael Hestltine long before the Labour Party came to power, or the Bank of England was given independence. They all CONVENIENTLY FORGET, the FTSE was at nearly 7000 ALL THOSE YEARS AGO. We still had an Industrial Base, and the population wasn’t in debt up to their eyeballs. AND THE BANKS WEREN’T MAKING AS MUCH MONEY OUT OF US. The party isn’t over until the Fat Lady Sings.
Yours
Charles Henry



