Professors Gordon Pepper, Charles Goodhart, Tim Congdon and a group of private sector economists argued inflation could spin out of control, with the Base Rate potentially reaching 7.5 per cent.
This followed reports that the money supply had grown by 12.8 per cent over the past year to March and that Consumer Price Index (CPI) inflation had reached 3.1 per cent, forcing Governer Mervyn King to write a letter of explanation to Chancellor of the Exchequer, Gordon Brown for the first time.
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Speaking to the The Daily Telegraph, Tim Congdon, a former professor at the London Business School, commented: “Inflation is back and it’s going to get to 4 per cent by the middle of the next year, even though I expect the CPI to fall back a little over coming months first.
“You can’t get away with money supply growth of 12 per cent or 13 per cent like this. It’s not as bad as earlier cycles, but it is nevertheless bad and it’s going to end the usual way. Rates will have to go to 6 per cent to 6.50 per cent, and may have to reach 7.50 per cent.”
However, Ray Boulger, senior technical manager at John Charcol, said money supply was less of a factor on inflation nowadays. “As credit has expanded, the amount of cash in the system is less relevant. It’s not scaremongering, as they are putting forward their view. But in my opinion, it is not as believable as the MPC’s, which is predicting CPI to fall back to target by the end of the year.”
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David Hollingworth, head of communications for London & Country, added: “The bottom line is that rates are heading upwards and the conflict is just over how high.”
