The Bank of England has been applauded by businesses today for its decision to keep the interest rate at 5.75% this month.
A further rate rise today would have been difficult to justify, businesses agreed, after inflation unexpectedly fell below the government’s target of 2% in July.
However, the onus is now on the bank to avoid further rises in the near future, and businesses want the Monetary Policy Committee (MPC) to recognise this.
David Kern, economic adviser at the British Chambers of Commerce (BCC), commented:
“Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement.
“The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being.”
According to the BCC, further interest rate hikes would be ‘extremely dangerous’ at the moment, as domestic and international risks continue to intensify.
Kern added: “The turmoil on the international credit markets is likely to worsen global prospects. More seriously, the increase in inter-bank rates could make vital credit costlier and less easily available.
“This situation already entails tighter monetary conditions, and is particularly dangerous for small firms.”
Kevin Hawkins, director general at the British Retail Consortium (BRC), agreed that the MPC made the right decision today:
“With clear evidence that previous rate rises and higher living costs are now squeezing disposable incomes and undermining retail sales, another rise would have piled on pointless pain.
“The bank should be looking to make its next move a rate cut.”
© Crimson Business Ltd. 2007
