Business leaders welcome continued interest rates freeze

BUSINESS leaders have welcomed the decision by the Bank of England’s Monetary Policy Committee to keep interest rates at an historic low – and have predicted things could stay that way for up to a year.

However, the Birmingham Chamber of Commerce Group said that while low interest rates were a welcome boost, other measures could further strengthen the UK’s economic recovery.

The chamber said the Bank of England should seriously consider introducing another round of quantitative easing if growth figures do not begin to accelerate.  

Chamber president Christine Braddock said: “Weak domestic consumer demand and a downturn in global trade flows have hit export sales, and because of this it would be prudent for QE to be considered as an option for the Bank of England should the economy continue to struggle.

“Businesses have been having a tough time recently.  Inflation is more than twice its target level, instability remains within the Eurozone, fuel and gas prices have risen and the cost of raw materials continues to worry businesses.  

“QE could provide the kick-start that the economy needs and help the UK economy out of this rough patch.”

However, she said the chamber believed tackling the deficit should still be the number one priority.  

“Recent issues around US debt and the Eurozone only reaffirm the necessity to tackle our structural deficit.  Although the recovery has been choppy and painful we believe that we are broadly on the right course,” she added.
 
Mike Ashton, spokesman for the West Midlands Chambers of Commerce, said many economists believed interest rates would remain unchanged until next year.

“We believe this would be a sensible course of action, given the global economy is still struggling to recover in the short term,” he said.

Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said: “Growth in the last quarter was low but, nonetheless, it was growth. Low interest rates are absolutely key in helping to get the economy growing in a sustained way so we are pleased that the MPC has taken this course of action.”

Graeme Leach, chief economist at the Institute of Directors, said: “The weak outlook for the UK economy means that the base rate may well stay at 50 basis points for the rest of this year and all of next year as well. It is getting very difficult to believe there will be any alternative to this policy.”

Ian McCafferty, CBI chief economic adviser, said: “The flow of economic news this month has made worrying reading for the MPC, with growing evidence of a softening of the global economy combined with rising inflation expectations in the UK.

“While we continue to believe the UK economy will pick up into 2012, we won’t see clear evidence of this in data for some months yet, leaving the Bank unlikely to alter its policy before the end of the year.”

Richard Halstead, Midlands region director at EEF, the manufacturers’ organisation, said: “Signs that the recovery may have lost momentum have pushed the inevitable rate rise further out into next year.  While the Bank’s next Inflation Report will be closely watched, it is unlikely we’ll hear any change in tack from the view that risks are anything but skewed to the downside.”