Business regrets decision to keep rates on hold  

The Bank of England’s vote to keep interest rates at 5.75 per cent this month has been with met with some dismay by the business community.

The decision by the Bank’s Monetary Policy Committee means that the cost of borrowing remains unaltered for the third consecutive month, following five rises since August of last year.

David Kern, economic adviser to the British Chambers of Commerce, said: “British business is disappointed but not entirely surprised by the MPC’s decision today to keep interest rates unchanged at 5.75 per cent. Given the worsening economic prospects, both UK and global, a cut today would have been justified and would have been very helpful in restoring confidence.”

Kevin Hawkins, director general of the British Retail Consortium, commented: “Hard pressed consumers needed to see a cut in interest rates today. There is clear evidence that disposable incomes are getting squeezed by higher living costs and the credit crunch and possibility of higher mortgage repayments is making consumers increasingly wary. As a result confidence is slipping.”

He added: “There is no doubt that the inflationary threat is receding. For two successive months CPI has been below the Bank's two per cent target and that is before the full impact of previous rate increases has had time to fully work through the system.

“There is only one way for rates to go when the MPC meets again in a month’s time and that is down. Consumers and retailers desperately need the relief.”

Ian McCafferty, chief economic adviser at the CBI, said: “An interest rate cut was unlikely this month as there are, as yet, few signs of any serious damage to the real economy from the upheaval in the money markets. What’s not in doubt is that the next move will be down.”

“The Bank will need to be vigilant for any signs of a significant erosion of business or consumer confidence but, unless the outlook for the wider economy dramatically worsens as a result, the Bank may well sit tight until early 2008.”


Date:5 October 2007

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