Interest Rates

Oral Answers to Questions — Treasury – in the House of Commons at 2:30 pm on 1st November 2011.

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Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport 2:30 pm, 1st November 2011

What recent assessment he has made of the potential effect on household spending of an increase in interest rates.

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

The Bank of England is responsible for monetary policy, as my hon. Friend knows, and setting the bank rate to meet its inflation target. Action by this Government in the comprehensive spending review and the Budget put the public finances on a sustainable footing and has supported low and stable interest rates. The higher interest rates seen in other countries highlight the risks when financial markets lose confidence in a Government.

Photo of Oliver Colvile Oliver Colvile Conservative, Plymouth, Sutton and Devonport

Home owners clearly benefit from having low interest rates, but inflation damages savers and consumers. Will my hon. Friend explain how the Government’s inflation target is set, and the criteria used to review it?

Photo of Chloe Smith Chloe Smith The Economic Secretary to the Treasury

I shall, by reference to correspondence, that my hon. Friend will be well able to delve into, between the Chancellor and the Governor of the Bank of England, but I note at this point that the Government believe that low and stable medium-term inflation is a prerequisite for economic growth, and that is what drives our policy.