Alone but confident!

Britain seems to be more and more isolated these days in its decision to leave interest rates at a low level. Just yesterday the MPC made the unsurprising call to leave rates at a record low level of 0.5%. And economists seem to now be suggesting that the earliest rates will go up will be November this year. Some even go so far as to say 2013 now.

Other countries seem to be going the other way. India, Russia, Australia, China Brazil and the eurozone have all been raising rates to counter inflationary pressures. Poland, Hungary and Denmark have also taken the plunge so why not us?

As I explained in my last blog economic circumstances in the UK do not make such a move favourable. There are more ways to combat inflation than putting up interest rates and we should remember we have had a significant level of fiscal tightening through increased taxation. Of course every country is unique and Britain has a disproportionately large banking sector. The economy remains extremely fragile, growth is weak and to raise rates now would almost seem an irresponsible act. Or to put it more strongly, in Roger Bootle’s words, ‘disastrous’.

Of course we are not completely isolated. The United States and Japan to name but a few are on side with Britain in keeping rates at low levels.

However it does seem more and more that we are out of kilter with the rest of the international markets.