Europe’s rate hike to 1.5pc puts spotlight on the UK

THE lines were drawn more starkly in the inflation debate yesterday as the Bank of England again refused to raise rates while the European Central Bank (ECB) hiked rates for a second time this year to 1.5 per cent.

ECB president Jean-Claude Trichet said: “It is essential that the recent price developments do not contribute to broad-based inflation. We will continue to monitor very closely any developments with regard to price stability.”

The ECB’s decision to crack down on inflation comes with Eurozone CPI inflation estimated at 2.7 per cent, throwing the spotlight on the Bank of England for its inaction despite CPI inflation of 4.5 per cent in the UK.

The BoE’s lack of concern for rising prices has prompted some economists to conclude that it is shifting its mandate towards growth stimulation rather than price stability.

Cheviot Asset Management’s David Miller said: “The Monetary Policy Committee has shifted its concerns to looking at how best to stimulate economic growth… I also wouldn’t be surprised if the MPC started to subtly change its mandate, moving it closer to that of the Federal Open Market Committee.”

The US FOMC has a duel mandate, unlike the BoE, with regard to both employment and inflation.