Vince Cable, the Secretary of State for Business, Innovation and Skills, has warned that raising interest rates prematurely or introducing new regulation could threaten the economy by harming business lending.
Economists have suggested in recent weeks that their should be a rates hike to curb the London housing boom, which they say is in danger of becoming a bubble.
But Mr Cable said that although this is an important issue, policymakers should not “lose sight of the bigger picture” of maintaining a system of credit to support the “real economy”.
Jonathan Russell, partner of chartered accountants, ReesRussell, said:
“As always the banks go for the easy, high security lending of mortgages and do not consider lending the small business a priority. The biggest control over interest rates has been the banks themselves rather than the Bank of England, as real interest rates paid by businesses have not dropped anywhere near as much as banks increased their margins.
“It is true something needs to be done to control the housing market but is an interest rise the best way?”
On the other hand, Jeremy Warner, assistant editor of the Daily Telegraph, says that Vince Cable’s advice is a political ploy, designed to “keep the economy motoring” until the general election in 2015.
Mr Warner said:
“At some stage quite soon, real wages will begin rising again, such are the skill shortages developing in many parts of the economy. The Bank of England needs to start normalising interest rates now in anticipation of these inflationary pressures.”
Image courtesy of Liberal Democrats