IoD fears BoE ‘stoking debt-fuelled bubbles’

James Sproule, chief economist at the IoD

The Institute of Directors has repeated its warnings about “ultra-accommodative monetary policy” after the monetary policy committee of the Bank of England, the UK’s central bank, voted unanimously to hold interest rates at record low of 0.5%.

The IoD said that while it is important that the committee remains vigilant about low inflation, “the greater concern remains keeping the economy growing and addressing potential asset bubbles.”

James Sproule, chief economist at the IoD (pictured), said: “It is unsurprising that the Bank of England has decided to hold interest rates once again given the uncertainties in the global market which have dominated 2016.

“Nevertheless, the IoD is concerned that monetary policy in the UK is still overly accommodative and could be stoking debt-fuelled asset bubbles.

“Low inflation has clearly tied the MPC’s hands. However, there remains little reason to be concerned that the near-zero rate of inflation will be anything but good news for the UK.

“The reason prices are not shifting is because global oil prices have collapsed. This is completely different to if low prices were being driven by a lack of consumer confidence.

“While it is important that rate-setters remain vigilant about what global uncertainty means here at home, as the year progresses, and if stability returns, the bank should begin to provide greater clarity about the precise timing of the first interest rate rise.

“The trigger for normalising rates remains economic strength rather than inflationary concerns.”

The central bank said its monetary policy committee voted 9-0 this week to keep rates at 0.5%, where they have stayed for nearly seven years.

The BoE also cut its economic growth forecasts.

The bank forecast the UK economy would grow 2.2% in 2016 and 2.3% in 2017, down from forecasts of 2.5% and 2.6 % in November.