Slowdown greater risk than inflation for UK

by Richard Kilner

Story link: Slowdown greater risk than inflation for UK

The Bank of England’s Monetary Policy Committee, the body responsible for interest rates, faces a continuing dilemma in 2008.

Officially the bank is directed to alter rates with its eyes firmly set on inflation.

However, in addition to inflationary pressures are fears of an economic slowdown, which would also be negative for British business.

Kate Barker, one of the bank’s policymakers, highlights the second danger as the more serious.

She has also stated that there is nothing the bank can do to prevent a short-team inflationary level far above the 2% target.

Barker believes that the greatest threat facing the economy is that the ongoing tight conditions within the credit markets persist, which could hit growth hard.

Over the course of 2008 the Bank of England’s MPC will have to grapple with the dilemma of interest rates, balancing the risks of rising inflation with those of a slowing economy.