Monetary policy dilemma continues

It is possible that we are now approaching the point at which we can say interest rates will move up, possibly at the end of the year. Adam Posen, the most enthusiastic member of the MPC on easing monetary conditions, believes that the Bank has now done enough (or at least all it can).

Of course this had to happen. The markets decided this was a bit of a surprise and the pound was bid up in price, as the expected rise in interest rates was moved forward. The link between exchange rates and the interest rate couldn't be more clearly indicated.

But Posen also makes the point that interest rates alone are not enough to induce growth. Expectations, based on business confidence, are also crucial, but so is the ability to borrow money.

If the financial sector cannot lend money to businesses then even when firms believe it is worth investing and can afford the loan then the investment won't happen. The attached article shows how important it is to get all the pieces in the jigsaw in place.

The Independent article is here