Small businesses have accepted that a further interest rate rise next month is inevitable following the publication of shock inflation figures, it has been claimed.
Figures released yesterday by the Office of National Statistics (ONS) revealed that CPI inflation was 3.1% in March, up from 2.8% in February and well above the government’s target of 2%.
According to the British Chambers of Commerce (BCC), businesses have acknowledged that an increase the Bank of England interest rate to 5.5% in May will be necessary ‘to restore credibility in the anti-inflation strategy’.
“The MPC minutes published today confirm our view that the Committee was preparing to raise rates even before the March increase in CPI inflation became known,” said David Kern, economic adviser to the BCC.
However, the organisation has condemned calls for a 50 basis points increase to 5.75% as misguided and potentially dangerous.
“Higher interest rates are already causing considerable pain. The squeeze on consumer disposable incomes is intensifying, and the surge in sterling is squeezing exporters’ margins, in spite of the partial offsetting benefits resulting in reduced costs of imported raw materials,” added Kern.
“The MPC must curb the upsurge in inflation, but must avoid monetary overkill that may cause long-term damage to business.”
© Crimson Business Ltd. 2007