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MPC split on prospects for UK economy

Minutes from the last Bank of England monetary policy committee meeting show that while all members were in favour of retaining UK base rates at 0.5% there is a difference of opinion regarding inflation and the threat from Europe. Some members of the committee believe that inflation in the UK could squeeze higher due to less "slack in the economy" than first thought, while others believe that credit limitations within Europe will reduce inflationary pressure in the UK.

The truth is that the Bank of England is stuck between a rock and a hard place with UK inflation showing signs of life although overseas events are likely to impact upon the UK economy in the short to medium term. There is a danger of increasing base rates too soon, which would stall the UK economic recovery, while retaining base rates at low level could feed the monster which is inflation. The truth is that inflation is likely to drift back in the short to medium term if problems overseas get any worse and economic activity in the UK is impacted.

Despite the fact it is over two years since the credit crunch hit home in the UK, the economy is still balanced on a knife edge and despite the billions upon billions of pounds already invested the road to recovery will be very rocky.

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