Business Secretary Vince Cable has warned an increasingly hawkish Bank of England from deflating the recovery with early rate rises.
The latest Monetary Policy Committee minutes, published yesterday, show committee members are leaning toward an earlier hike in the base rate than markets had anticipated, perhaps before the year’s end.
According to the Telegraph, in a speech at Bloomberg’s headquarters in London yesterday Cable said: “If these incipient inflationary pressures lead to a rise in interest rates sooner and further than is warranted by the economy as a whole, it could place in jeopardy our hopes for a sustained and balanced recovery.”
The Guardian reports Cable also criticised the Bank of England for imposing capital requirement rules that favour mortgage lending over lending to small businesses.
The Bank believes SME lending is more risky than providing credit for a mortgage and so it requires more capital to be held against business loans.
Cable said high street bank bosses had told him business lending is unlikely to increase until the current rules are reformed.
He said: “The way the regulatory system operates has undoubtedly had a suffocating effect on business lending and particularly on our exporters.
“Not surprisingly, the result is that banks pump out lending in the mortgage market, while lending to small businesses is restricted. This directly stems from the rules on which the regulatory model is based and has had a very damaging impact.”
“There are important decisions ahead for the Governor of the Bank of England on capital, and I will watch carefully how any changes in the leverage ratio affect…business lending capabilities.”
Cable added: “I’m not suggesting there is some perverse individual blocking all this. I just think the situation could be freed up and the decision-makers are sitting inside the Bank”