Interest rate rise threatens export potential for West Midlands firms

AN interest rate rise could damage the export prospects of firms in the West Midlands, business leaders have said.

The Birmingham Chamber of Commerce said prospects of an interest rate rise next year were strengthening despite the Bank of England saying the 0.5% rate would be retained for the time being.
 
Steve Brittan, immediate past president of Birmingham Chamber and managing director of exporters BSA Machine Tools in Birmingham, said: “A future interest rate rise will no doubt be of concern to exporters in the West Midlands due to its potential impact on exchange rates.  As interest rates climb, we will see hot money coming into the country, strengthening the pound.
 
“For holiday-makers, this is good news but ultimately it slows down exports and leaves imports cheaper, creating a negative effect on the deficit.
 
“Under Mark Carney, the Bank of England has taken a more surgical approach to interest rate decisions, and there is an appreciation of the impact of interest rates on wider sections of the economy.”
 
The chamber said a split in the Bank’s Monetary Policy Committee over an increase in rates suggested change was on the horizon.

These fears were increased with a warning from the International Monetary Fund (IMF), which said ultra-low interest rates posed the threat of a fresh financial crisis by encouraging excessive risk-taking on global markets.

The Washington-based IMF said that more than half a decade in which official borrowing costs have been close to zero had encouraged speculation rather than the hoped-for pick up in investment.

In its half-yearly global financial stability report, it said the risks to stability no longer came from the traditional banks but from the so-called shadow banking system – institutions such as hedge funds, money market funds and investment banks that do not take deposits from the public.

José Viñals, the IMF’s financial counsellor, said: “Policymakers are facing a new global imbalance: not enough economic risk-taking in support of growth, but increasing excesses in financial risk-taking posing stability challenges.”

He added that traditional banks were safer after the injection of additional capital but not strong enough to support economic recovery.

Viñals said the IMF had analysed 300 large banks in advanced economies, making up the bulk of their banking system. It found that institutions representing almost 40% of total assets lacked the financial muscle to supply adequate credit in support of the recovery. In the Eurozone, this proportion rose to about 70%.
 

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