Businesses braced for further rate rise

03/07/07 16:44

Businesses have urged the Bank of England to keep the interest rate stable amid forecasts of a further rate hike this month.

Last month, the Monetary Policy Committee (MPC) voted to keep the interest rate at 5.5%, but businesses are anticipating a rise to 5.75% on Thursday.

EEF, the manufacturers’ organisation, said that it would not support a further rise.

Although the EEF has backed the bank’s last four increases as necessary to maintain the credibility of the government’s 2% inflation target, the organisation said that a further rise is no longer necessary.

According to the EEF, earnings growth remains subdued, price increases are failing to materialise, mortgage approvals are falling and inflation is easing on all measures.

Commenting, EEF chief economist Steve Radley, said: “We have supported the bank all the way through the current cycle of increases. However, we now believe that there are indications that the medicine applied so far is beginning to take effect and the case for another rise is not made.

“In particular, the previous rate tightening cycle was associated with a slowdown in consumer spending and the impact could be larger this time given higher levels of consumer debt and weaker earnings growth.”

These sentiments were echoed by the British Chambers of Commerce (BCC).

David Kern, BCC economic adviser said: “British businesses are resigned to an increase to 5.75% on Thursday.

“We appreciate the MPC’s legitimate concerns over inflation, but, on their part, they must appreciate the growing risk of going over the top, and causing unnecessary and lasting damage to the economy.”