Rate rise too risky predicts experts

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With the Bank of England’s Monetary Policy Committee poised to announce its decision on interest rates today, East Midlands firms are naturally anxious over the MPC’s decision.

A rise would bring the level back to 0.5 per cent, where it had languished for nine years before the cut last August.

Those in favour of a rise suggest an 0.25 per cent increase may not make that much difference but those against argue there is a real risk that it will affect consumers who have so far been propping up the economy.

So, what do business leaders think?

Vicky Pryce, Chief Economic Adviser, for the Centre for Economics and Business Research says the bank should hold rates: “Most economic indicators suggest a slowdown ahead and third-quarter data confirm the lack of meaningful improvement in growth. ”

Tej Parikh, senior economist, Institute of Directors agrees: “With subdued real wage growth already squeezing households, and an uncertain economic outlook, rate rises should remain on hold for the time being – particularly with the inflationary impact of the weakened currency soon expected to fade.”

Howard Archer, Chief Economic Adviser to the EY club says: “We believe that it is still likely that inflation will fall back markedly through 2018 as the impact of sterling’s past drop fades and domestic price pressures are limited by lacklustre growth, with only a gradual pick-up in earnings.

“While it is understandable that the MPC will want to gradually normalise interest rates from their current ‘emergency levels’, we believe it would be better to do so once the economy is on a stronger footing,”

Peter Hemington, Head of Corporate Finance at BDO, says: “Despite the highest rate of inflation for five years, the MPC must resist the temptation to hike interest rates. Economic growth is uninspiring, consumer spending is struggling and Brexit continues to bring great uncertainty for business. We want to see the Bank of England keep its powder dry.The big challenge to the UK economy is low productivity caused by decades of underinvestment. Policymakers need to commit to a huge programme of infrastructure investment and a focus on skills.”

Suren Thiru, Head of Economics at the British Chambers of Commerce, says: “the Bank of England’s policymakers should resist the temptation to raise interest rates, particularly during this period of heightened political uncertainty.

“Raising rates before the UK economy is ready risks undermining consumer and business confidence, weakening the UK growth prospects further.”

Mike Cherry, Federation of Small Businesses (FSB) National Chairman, says: “Small businesses are really starting to feel the inflationary squeeze. Rising prices mean less customer spending power – one in three small firms sees consumer demand as a barrier to growth. Seven in ten report a rise in operating costs, costs which ultimately have to be passed on in the form of reduced wages or further price increases. ”