As Bank of England minutes reveal a unanimous vote to hold interest rates, should its first hike wait until 2016?

When should the Bank of England raise interest rates? (Source: Getty)

John Longworth, director general at the British Chambers of Commerce, says Yes

The latest MPC minutes make it clear that even the hawks don’t believe there is a convincing case for near-term rises in interest rates, something that UK businesses will applaud. Falling global oil prices, Eurozone uncertainty, sluggishness in emerging markets, and the near absence of inflation here at home suggest that the best thing the Bank of England can do to support UK growth is to keep interest rate policy on hold for the foreseeable future.

Rock-bottom rates are a huge incentive for businesses to keep up the high levels of investment and hiring we’ve seen over the last year. Business investment in Britain has a lot of ground to make up, so it must be sustained if it is to boost our long-term competitiveness. Low rates also help to keep down the value of sterling, improving prospects for UK exporters.

When rate rises finally do come, businesses want them to be slow and steady. On current trends, though, this won’t be until 2016 – or perhaps beyond.

James Sproule, chief economist and director of policy at the Institute of Directors, says No

There are any number of ways of judging optimal interest rates. If ever you needed convincing that economics is indeed an art rather than a science, look no further. That said, most economists depend on the Taylor rule to guide interest rate policy.

This balances inflation (not anytime soon) and spare capacity (difficult to judge at the best of times, and now is not the best of times). Conclusions vary, but the rule suggests we can wait. But mechanistic arguments are missing the point. The Bank of England said that monetary policy is exceptional at the moment, suggesting a normalisation should be expected.

With the UK economy seeing solid growth, we need to consider that, barring a storm, where would we like monetary policy to be in two years’ time? Now is the time to start moving towards that goal. If circumstances change dramatically, we can change our minds (to paraphrase Keynes).

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