Businesses have criticised today’s decision by the Bank of England to increase the cost of borrowing to its highest level in more than six years.
As the markets expected, the bank’s Monetary Policy Committee (MPC) today voted to raise the interest rate to 5.75%, in an attempt to curb CPI inflation.
According to figures from the Office of National Statistics (ONS) CPI inflation fell from 2.8% in April to 2.5% in May, but remains significantly higher than the government’s target of 2%.
Steve Jennings, director of business banking at Alliance & Leicester Commercial Bank, said that the decision would be unwelcome news for small and medium-sized businesses.
He said: “Additional pressure on profit margins is now a growing concern, especially for consumer-facing small firms such as independent retailers, hairdressing and beauty salons, pubs and restaurants and hotels.
“A rising cost of borrowing for businesses, teamed with a reduction in sales due to lower levels of consumers’ disposable income, is just one of the problems facing small businesses today.”
The British Retail Consortium (BRC) said that consumers are already reining in their spending as a result of the four previous rate increases to hit homeowners since August.
BRC director general Kevin Hawkins commented: “This could well be an increase too far.
“It’s clear there is more impact which has yet to feed through to sales and consumer confidence. With disposable income growth at record lows, saving slumping and customers struggling to meet rising household bills, the squeeze is tightening.”
Meanwhile, manufacturers in the UK argued that the MPC’s decision was ‘overkill’, risked causing a sharp slowdown to the economy and would put an added strain on exporters.
EEF chief economist, Steve Radley said: “Manufacturers will be concerned that today’s rise in rates, and expectations of more to follow, will increase the pressure on exporters exerted by the pound’s strength against the dollar.”
© Crimson Business Ltd. 2007
