Business leaders welcome freeze on interest rates

BUSINESS leaders have welcomed the Bank of England’s decision to continue with its freeze on interest rates but believe it is only a matter of time before a rise is put in place.

The Monetary Policy Committee yesterday opted to retain the 0.5% rate despite concerns about rising inflation.

Christine Braddock, president of the Birmingham Chamber of Commerce Group, said: “High inflation and increasing utility prices point to a rise at some point in 2011, possibly in November, but timing is crucial. As long as wage increases remain subdued, the MPC should hold its nerve for the time being.

“Our members continue to inform us that they are benefitting from the low interest rate. However, at the same time, inflation is currently the prime concern.”

Mike Ashton, spokesman for the West Midlands Chambers of Commerce, said: “To raise interest rates now could damage the resurgence in exports, particularly for manufacturers.  

“The pound has devalued by around 25% since the recession which means that British goods are cheaper in foreign markets so demand for luxury and high quality goods have continued to grow.”

Mark Smith, regional chairman at PwC in the Midlands, said: “Recent mixed figures from the manufacturing and construction sectors made it almost inevitable that interest rates would be kept on hold this month.

“Some commentators were speculating that the committee would vote to tighten monetary policy as early as August, when the latest set of inflation and growth figures are published, but while the economic outlook remains so uncertain, this is now considered highly unlikely.

“What Midlands businesses need most is stability and we would urge the Committee to continue to hold its nerve and keep rates on hold until economic recovery is more firmly established.”

Mike Steventon, senior partner of KPMG in Birmingham, suggested a change might not happen until next year.

“The MPC’s decision to hold interest rates again could be a sign that interest rates will not rise much before 2012,” he said.

“The fiscal squeeze is now starting to bite and with the Chancellor ruling out a U-turn on the UK’s austerity cuts, the immediate economic environment remains challenging. It may be at least another six months before we see an interest rate change.”

Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said the MPC had made the right decision.

“The UK economy needs low interest rates to continue, what has been so far, a fragile recovery from the recession,” she said.

“We understand the fact that inflation is higher than anyone would like but that is largely due to international pressures and there is certainly no case to say demand needs to be dampened in the UK.

“So while some may be uneasy about low interest rates in the face of higher inflation, it is the right thing to do for the economy and the recovery.”

She added what the chamber wanted and what it was working with the Coventry and Warwickshire Local Enterprise Partnership to achieve, was more businesses exploiting low interest rates to boost growth.

“That means more viable companies being able to get finance to invest in expanding their business,” she said.