The Bank of England has frozen UK interest rates at 5%, despite criticisms that the decision could negatively impact businesses.
The verdict was widely expected despite inflation currently tracking 1.2% higher than the 2% target rate and the recent release of a report suggesting the UK was at risk of recession.
Commenting on the decision by the Bank’s Monetary Policy Committee (MPC), David Kern, economic adviser for the British Chamber of Commerce, said: “Our members are very concerned about inflation and we have not called for an immediate interest rate cut. But the MPC cannot ignore the fact that the economic situation, as highlighted in our latest quarterly survey, has deteriorated at an alarming pace.”
Furthermore, business confidence has “plunged to historically low levels”, Kern warned.
“The acute deterioration in the cashflow position of many businesses heightens threats of a serious credit crunch. Though a major recession can still be avoided, it is imperative to nurture confidence,” he urged.
The MPC’s reluctance to lower interest rates has the potential to harm businesses the longer it is maintained. Britain's housebuilders say they will have to slash more than 4,000 jobs to help weather the downturn and thousands of estate agents are also expected to find themselves out of work.
Ray Boulger, of mortgage adviser John Charcol, pointed out that the Bank needed to do something to re-energise the economy.
“With the economic news from nearly all sectors of the economy getting worse by the day, a rate cut is badly needed to help restore some confidence to consumers and reduce the financial pressure on both them and industry,” he said.
© Crimson Business Ltd., 2008