Too soon to change interest rates – despite fall in inflation

A fall in inflation in December need not set the trend for the remainder of the year, businesses in Greater Birmingham have been told.

Figures from the Office for National Statistics show that the rate of inflation fell back to 3% last month – mainly due to a fall in the prices of games and toys. This helped offset a rise in air fares.

Despite the fall, the Greater Birmingham Chambers of Commerce (GBCC) has urged the Bank of England to hold back from any change to interest rates.

It said stagnant wage growth was still having a damaging impact on consumer spending.

Suggestions from the Bank are that inflation may have peaked at the end of 2017, with the rate falling back towards 2% during 2018.

Paul Faulkner, the GBCC’s chief executive, said: “While it was pleasing to see the rate of inflation fall for the first time since last summer, it’s still too early to say whether we will start to see a gradual decline in inflationary pressure as the lower value of the pound is continuing to create higher import costs for UK firms.

“Furthermore, if the rate of inflation continues to hover around the 3% mark for the next few months, then it remains to be seen how long the Bank of England can stave off another base rate rise especially as stagnant wage growth continues to have a detrimental impact on consumer spending.

“This is a key driver of growth in this country but we urge the Bank to hold its nerve even though it also has to look after the interests of savers.”

He said the chamber’s own quarterly study had shown that concerns over rising interest rates had almost doubled in Q4 compared to the previous quarter.

“However, we shouldn’t lose sight of the fact that the majority of firms in the region are still expecting their turnover and profitability to go up in 2018,” he added.