MPC expected to hold interest rates

Policymakers at the Bank of England are expected to keep interest rates at their record low level despite rising inflation.

The Monetary Policy Committee (MPC) has come under increasing pressure to raise interest rates to try to beat down inflation.

Last month, the consumer prices index (CPI) rose to 4.4% from 4% in February, well above the target of just 2%.

Since the last MPC vote in interest rates in March, it has emerged that consumers' disposable income dropped for the first time in 30 years as wages failed to keep up with the rising cost of living.

Matters were not helped by the crises in North Africa and the Middle East, which have pushed oil prices up to post-recession highs.

But most economists expect the MPC to keep rates at 0.5% because there is uncertainty about the strength of the economic recovery, which may not be resilient enough to withstand a hike.

Philip Shaw, chief economist at Investec, said: "We suspect that the MPC will still be faced with a poor run of consumer data which will dissuade it from raising rates.

"So despite the further rise in the CPI inflation rate, which will no doubt be unsettling for the MPC, we suspect the MPC will sit tight.

"Given the risks that seem to be circling UK economic prospects at the moment, we think a wait-and-see approach would be the right one."

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