Businesses 'let down' by interest rate freeze

08/11/07 18:00

The Bank of England has voted to hold the interest rate at 5.75% this month, much to the disappointment of UK firms.

With inflation remaining below the government’s target of 2%, businesses were calling for a cut in the cost of borrowing today amid growing concern that the credit crunch is worsening.

UK retailers in particular have expressed fears that the cumulative effect of five interest rate rises since August 2006 has squeezed consumers’ disposable incomes to the extent where it is having a knock-on effect on sales.

Commenting on today’s decision, Kevin Hawkins, director general of the British Retail Consortium (BRC), said: “It's disappointing that the Bank has failed to deliver the shot in the arm customers and retailers desperately need.

“With evidence mounting that a serious recession is looming in the US and consumer confidence and disposable incomes slipping here, the MPC should have taken pre-emptive action to avoid more serious knock-on effects to the UK economy.”

Meanwhile the British Chambers of Commerce (BCC) warned that the Monetary Policy Committee (MPC) that today’s decision left the UK economy open to a sharp slowdown.

David Kern, BCC economic adviser, said: “We regret the decision today to keep interest rates unchanged at 5.75%, as the immediate priority of the MPC must be to limit the risk of a major downturn.

Given the subdued domestic inflationary pressures, a cut in rates today would not have posed serious risks.

“Credit conditions have become tighter since August, both globally and in the UK. The dangers to the economy have worsened and businesses require easier credit conditions without undue delay, to avoid a nasty reversal. We urge the MPC to announce a small interest rate cut in December.”