Caution advised as interest rates stay at 5.75%

02/08/07 16:57

Business groups have praised the decision to keep the rate of interest at 5.75% but have urged the Monetary Policy Committee (MPC) to resist further rate hikes.

With five interest rate increases within the past year, news of today’s rate decision will have come as a relief to many businesses.

However, while Kevin Hawkins, director general of the British Retail Consortium (BRC) applauded the decision, saying it would ‘give retailers much needed breathing space’, he remained in favour of a ‘prolonged freeze’ of rates to allow businesses to recover.

The EEF, the manufacturer’s organisation, is also in favour of the decision but advises a cautionary approach.

The EEF senior economist, Lee Hopley, said: “Given some evidence emerging that the Bank may have already done its job, rates should be left where they are until a clearer assessment can be made of the direction of the economy.”

David Kern, economic advisor to the British Chambers of Commerce (BCC) said he remained ‘concerned’ about the situation, warning that now the MPC should adopt a cautious stance ‘and avoid an overreaction which could cause serious economic damage’.

He said: “As many businesses begin recovering from the floods and while the world’s credit markets are facing worsening problems, it would have been inconceivable to contemplate an increase.”

Equally, rate setters remain concerned about the current rate of inflation, which stands at 2.4%, higher than the government’s target of 2%. Many economists are predicting further inflation to 6% by the end of the year.