The Bank of England must cut rates in the next two to three months to avoid a ‘major downturn’, a business lobby group has said.
The comments, by the British Chambers of Commerce (BCC), came ahead an interest rate decision by the Bank’s Monetary Policy Committee (MPC), due to take place on Thursday.
While the MPC has been widely expected to hold rates, which have stayed at 5% since April, there have been calls from business organisations to lower them and ease pressure on businesses.
David Kern, economic adviser to the BCC, the UK economy is ‘very probably’ in technical recession already.
“The risks that the situation could worsen have increased. House prices have recorded annual falls in excess of 10%, adding to banking sector bad debts, and weakening the banks’ ability to provide vital finance to hard-pressed businesses,” he said.
“Recent figures also show declines in UK manufacturing and construction output, and in business investment.”
He added that although the BCC understands the MPC’s concerns that lowering rates could raise inflation, the MPC’s ‘own analysis’ has suggested inflation will peak in the next two to three months.
“A major recession can still be avoided, but the MPC cannot wait too long before acting. To reduce the threat of a severe economic downturn, the MPC must start cutting interest rates in October or November,” he said.
© Crimson Business Ltd. 2008
