HOWZAT

With inflation, and inflation expectations, rising sharply, the standard presumptive remedy is a rise of the policy rate by more than the rise in inflation. Moreover, the mantra that the Bank of England will stand ready to raise interest rates if second round effects start to occur will be increasingly disbelieved if the Bank spurns this chance to show its willingness to exhibit tough courage after a month when consumption has remained strong, and before the labour market has seriously started to weaken. There is, of course, no case for a cut in rates.

And yet! The effective tightness of monetary policy is being ratcheted upwards as deleveraging continues. Spreads, and terms, get tighter and tougher for borrowers. The housing market is collapsing, as is housebuilding. Consumer confidence has sunk, and recession appears ever closer. Those deciding on wages and prices are aware of the fragility of the real economy. So, while everyone would like to pass on much of the rise in input costs, they can see how that may adversely affect their own chances of maintaining activity. Moreover, there are incipient signs that the deleveraging is beginning to have significant depressing effects on the monetary and credit aggregates, a development that needs careful watching.

So, no change.

Anatole Kaletsky

Editor-at-large and chief economics commentator, The Times

HOLD

I vote for no change. Although the weakness of the economy continues to make a case for lower interest rates, growing doubts fears about the Bank of England's credibility, along with the the pressures on public sector pay, argue for a cautious approach. In any case a rate cut before the summer holidays would probably be a waste of monetary ammunition.

Rupert Pennant-Rea

Former Deputy Bank of England Governor; chairman of Henderson fund managers

HOLD

This is the two-handed economist’s dream – and the MPC’s nightmare. On the one hand, a sharp slowdown in GDP growth, high-street gloom, plus falling stockmarkets and house prices all support a cut in interest rates; on the other, inflation well above target, plus worsening inflationary expectations, suggest the need for dearer money.

There is no simple or painless way out of this dilemma. Britain will have a recession, though reasonable people can disagree about when it will start (or whether it has started) and how deep it will be. The recession is unavoidable; it is now the only way to bring inflation back under control.

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