THE Bank of England was cautioned against a premature increase in interest rates yesterday by a former member of its Monetary Policy Committee who now heads the CBI.

Richard Lambert warned the Bank that recent robust trends in high street activity might not last and that an increase in borrowing costs next month could undercut consumer demand.

The CBI’s Director-General said that while its latest snapshot of high street conditions, out yesterday, painted a relatively rosy picture, “our feeling is that the current momentum is not going to persist”.

Trading had been boosted by a series of special factors, including the World Cup, the timing of Easter and recent hot weather, he suggested. After a sharper than expected rise in inflation in June and buoyant second-quarter growth figures fanned expectations that the Bank could raise rates as soon as August, Mr Lambert said that such a move could inflict a bigger than normal blow to economic activity. “A reason we think it would be sensible to sit and do nothing now is that consumption is at a delicate stage, and it would be possible to have greater than normal consequences if people think this is the start of a change,” he said.

“We think this is not a time to make a move.”

He said that with consumer spending facing a squeeze from rising energy bills, business cautious over investment, public spending growth set to slow and the prospect of weaker global conditions, the CBI believes that the UK economy will slow through the second half of the year. In turn, it sees inflation falling back into 2007.

Mr Lambert’s remarks came as the CBI’s high street survey for July showed the pace of sales growth easing a little. Yet underlying sales growth over the latest three months remained the strongest for almost 18 months.

The CBI chief also took a tilt at the Government over corporate tax, arguing that it stood at “unsustainable” levels. Without cuts, companies would try to make profits outside Britain, he said.

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