Bank ratesetter argues for borrowing-cost rise

Raising borrowing costs would help the Bank of England to reach its inflation target sooner and give it more flexibility in monetary policy, Bank ratesetter Martin Weale has told a German newspaper.

The Bank voted by seven votes to two to keep interest rates at 0.5 per cent in early July, judging that economic weakness had eased the case for a policy tightening. Mr Weale voted for a 25-basis point increase, as he has done consistently since January.

“A hike of one quarter percentage point would have very little impact on demand over a period of six months but it would have been a signal that we are as concerned about inflation as we are about growth prospects,” he was reported as saying in the financial daily Handelsblatt yesterday.

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Mr Weale said there was a real danger that Britain’s economy could contract again, and it was arguably on the verge of a double dip recession last winter.

The economy slammed into reverse at the end of last year and grew only 0.2 per cent in the second quarter from the first.

The poor growth rate has prompted investors to push back bets on the timing of a UK interest rate rise until the second half of next year, and some analysts believe rates could stay at their record low for longer.

Mr Weale said he did not believe Britain’s debt situation would get out of control.

He said UK debt levels, which the Government was determined to cut, were below the average of the past 200 years.