Upper chamber demands lower interest rates

The House of Lords' Economic Affairs Committee has levelled criticism at the Bank of England for maintaining high interest rates.

11:40 11 November 2004

The House of Lords' Economic Affairs Committee has levelled criticism at the Bank of England for maintaining high interest rates.

The panel of peers did praise the Monetary Policy Committee, which has controlled rates since 1997, as a "real success", but said that its poor assessments of the economy had stranded interest rates too high.

The MPC has raised the base rate of borrowing, upon which many mortgage rates are based, five times in the last year - it now rests at 4.75 per cent.

Chairman of the Lords' committee, Lord Preston, said: "The persistence of inflation below target and the continued absence of strong demand factors in inflation are evidence that interest rates have been kept too high."

The committee blamed the MPC's apparent inability to nail inflation predictions: "It is remarkable that the MPC consistently over-predicted inflation until 2002 and then after that consistently under-predicted it."

The committee also raised concern over the government's decision to switch methods of calculating inflation targets to the new Consumer Price Index and suggested that future MPC membership should be restricted 'acknowledged experts' in monetary economics.