Cameron warns over inflationary dangers ahead of Bank rates decision

Julian Harris
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UNEXPECTEDLY high inflation could exacerbate splits in the Bank of England’s rate setting committee, which meets this week.

Prime Minister David Cameron yesterday expressed concern about the UK’s inflation, which is consistently above target.

“Inflation is extremely harmful. It destroys people’s savings,” he said.

“We don’t want to go back to having an inflation problem as we had in the past.”

Yet the Prime Minister gave his backing to the “excellent” Bank governor Mervyn King.

The Bank’s monetary policy committee (MPC) faces a three-way split.

While Andrew Sentance is likely to keep proposing a small rise in interest rates, “dovish” American Adam Posen is expected to continue suggesting a further programme of quantitative easing (QE2).

The rest of the committee has stayed on the fence in recent months, yet increasing differences among economists may be reflected in larger factions emerging within the MPC.

Consumer price index (CPI) inflation will hit four per cent in the next three months, according to ING forecasts. Producer price data, released this Friday, is expected to show further price increases.

Yet a weak labour market will keep inflation down, said business advisory group BDO today.

Nonetheless, business morale rose above expectations, according to BDO’s business trends report.