Institute of Directors: Bank of England must raise interest rates now or risk being defenceless during the next crisis

 
Emma Haslett
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Unless rates are gradually hiked soon, the UK will be "defenceless" when the next crash comes, the IoD warned (Source: Getty)

The Institute of Directors (IoD) has urged the Bank of England's monetary policy committee (MPC) to start raising the interest rate "now" or risk being "defenceless" when the next financial crisis comes.

Read more: Pound jumps as Bank of England moves closer to rate hike

In a statement released after yet another decision to hold rates at 0.5 per cent (although minutes published this morning showed the MPC was more hawkish than usual), the IoD said it was time to start "normalising" rates - or suffer the consequences.

James Sproule, the IoD's chief economist, said while low rates were justified when the economy was "in the doldrums", now it's no longer the case, meaning the Bank of England must reassess its policy.

“Inflation may be hovering around zero, but for monetary policy to be effective, interest rates need to be at a level where they can, if needed, stimulate the economy," he warned.
"Quantitative Easing should not be seen as a substitute for a long term policy on interest rates.
“The longer interest rates languish at a historic low, the harder it will be for Mark Carney to raise them ‘slowly and gradually’. The earlier the process of normalising rates starts, the smoother the course will be, and the longer the economy will have to adjust and prepare.
If rates do not begin to return to a more sustainable level soon, the Bank of England will be defenceless when the next crisis strikes, and unable to support the economy by shifts in monetary policy.”

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