BCC issues fresh plea on UK interest rates
The Bank’s Monetary Policy Committee (MPC) is expected to once more keep the base rate at 0.5pc on Thursday, despite inflation running at 4.5pc.
If so, the decision will fan criticism that its policymakers are wrongly prioritising economic growth over their remit of keeping the pace of price rises at the 2pc target, leaving households painfully squeezed.
However, the British Chambers of Commerce (BCC) backed the Bank, calling for it to keep borrowing costs low for businesses until at least the fourth quarter of this year.
“Any increase in interest rates in these circumstances would risk triggering a setback,” said David Kern, chief economist at the BCC. “The Government’s tough austerity plan is intensifying pressures on both businesses and consumers. As long as wage pressures remain muted, and there are no signs that the UK is at risk of a wage-spiral, the MPC must hold its nerve.”
Increases in VAT and in energy prices which have driven up inflation are outside the MPC’s control, he argued, and increasing the costs of borrowing would only worsen the squeeze on companies’ cashflow and on disposable incomes.
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He said if the economy is weakening the MPC should “seriously” consider pumping more money into the system via quantitative easing.
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