"But the Committee will face a tough dilemma over the next few months as it attempts to balance its’ inflation target obligations against a strong household sector:-
- As house price inflation is still strong although it slowed last year and activity on the High Street has remained strong in recent weeks (according to the latest CBI and consumer confidence surveys), the Monetary Policy Committee will be keen to increase interest rates soon to help slow house price inflation and consumer spending.
- But playing on the minds of the Committee members will be the fact that it very hard for them to justify another rate rise at a time when inflation is well below its 2% target.
So, if the Monetary Policy Committee wants to raise rates sooner rather than later, it will have to deliberately overlook its inflation target. We think they will indeed do this next month and increase the base rate by 0.25% to 4%."
