Further interest rate rises 'dangerous'

The British Chambers of Commerce (BCC) has warned the monetary policy committee (MPC) that further increases in the interest rate could be dangerous for the British economy.

David Kern, economic adviser to the BCC, said that the past few days has seen a dramatic change in mood on financial markets.

While it is now widely expected that rates will be held as they are in August, Mr Kern said that domestic and international issues have led to a "much darker short-term mood".

He referred to the recent floods in the UK, which have put severe pressure on businesses, and deterioration in global credit markets eroding confidence and triggering widespread falls on stock markets.

"Against this background, it would be very dangerous to contemplate interest rate increases and we expect the MPC to keep rates at 5.75 per cent. But the markets still expect an increase in rates later in the year and this is very regrettable," the economic adviser said.

"Many commentators are now supporting our view that the MPC risks raising rates too far and is not allowing sufficient time for previous increases to have their full effect."

Considering recent signs that the housing market is starting to soften, Mr Kern said it was important for the Bank of England to avoid an overreaction that could cause "serious economic damage".

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