Start printing money again, business leaders urge Bank

Business leaders yesterday urged the Bank of England to print more money if the economic recovery continues to falter despite signs of a tightening in monetary policy.

The call from the British Chambers of Commerce (BCC) came after it emerged that a second central bank policymaker had unexpectedly voted for a rise in interest rates this month.

Minutes from January's meeting of the bank's nine-strong monetary policy committee revealed that Martin Weale joined arch-hawk Andrew Sentance in arguing for a quarter-point hike in borrowing costs at January's meeting.

Although the pair were out-voted by their colleagues, the minutes showed that the decision to leave rates unchanged was "finely balanced" for some members and that next month's inflation report would help them assess the outlook for prices.

The bank is having to juggle fears of a spike in inflation with a raft of negative economic data culminating in Tuesday's revelation that the UK economy had unexpectedly slipped into contraction in the closing months of 2010.

The MPC meeting took place a fortnight before the shock news of a 0.5 per cent decline in GDP output.

David Kern, chief economist at the BCC, said the latest minutes signalled an "unwelcome shift" towards a tougher monetary stance.

"The economic background has changed significantly for the worse since the meeting took place with a worrying decline in GDP in the fourth quarter of last year," argued Kern.

"British businesses need a prolonged period of low interest rates to cope with the pressures resulting from the implementation of the government's deficit-cutting programme.

"But it is important that the recovery is not threatened. If the economy weakens the MPC must be prepared to consider a further increase in its quantitative easing programme."

The prospect of an earlier rates rise saw sterling recover ground after it fell on Tuesday in the wake of the dreary GDP figures.

Economists, though, played down the chances of the base rate rising from its historic low of 0.5 per cent in the near-term.

Howard Archer, chief UK economist at IHS Global Insight, admitted that while it was "not totally inconceivable" that rates could rise as early as February, the unexpected dip in GDP would encourage the majority of MPC members to hold fire.

"For now, we are retaining our view that the Bank of England will hold off from raising interest rates until the fourth quarter," he said.

"Meanwhile, we think further quantitative easing is highly unlikely given the inflation risks."

Paul Robson, currency strategist at RBS Global Banking, said: "I don't think the BoE minutes will change the outlook.

"The market may be pricing in chances of a rate hike but the UK faces the possibility of no growth and high inflation. There are concerns about stagflation and sterling will find it difficult to rise much."The details of the meeting followed a warning from central bank governor Mervyn King that the UK was facing the biggest squeeze on living standards since the 1920s as inflation moves towards 5 per cent - from its current level of 3.7 per cent - in coming months and wage growth slows down.

Inflationary fears have prompted warnings from some economists that a rate hike was likely to come sooner than expected. King's reluctance to raise rates any time soon has been questioned by some officials in other central banks.