Inflation drop welcome but firms still need more help – chamber

A FALL in the rate of inflation has been hailed by West Midlands business leaders but they added more is still needed to bolster the flagging economy.

Latest figures from the Office for National Statistics showed inflation fell back sharply in December to 4.2% from November’s 4.8%.

Heavy discounting by retailers in the run-up to Christmas combined with lower fuel prices are thought to be the mitigating factors in the drop.

Michael Ward, president of Birmingham Chamber of Commerce Group (BCCG), said with the levels beginning to stabilise, the Bank of England had to act to ensure the trend continued.

He said that while many of the factors that determine inflation were largely out of the control of the Bank, the Monetary Policy Committee could ease the situation further by increasing the current quantitative easing (QE) programme from £275 to £325bn.

“We believe this would help create a much-needed boost for the economy in this period of flat growth and demand,” he said.

“The fall in inflation has been helped by heavy discounting from retailers over the Christmas period and recent cuts in energy tariffs by the big utilities.

“We do expect to see a continuing fall in inflation over the next few months as the many unique global shocks of 2011 is unlikely to be repeated and will therefore fall out of the calculations.

“It is vital that the Bank of England continues to support business by holding interest rates at 0.5% and considers increasing the QE programme.”

He said inflation remained 2.2% above the Bank of England’s target and the chamber’s latest quarterly economic survey for the West Midlands had shown that 23% of manufacturers and 24% of businesses in the service sector had cited inflation as the biggest issue putting pressure on their business.

Commenting on the figures, John Rider, Midlands chairman of the Institute of Directors said: “What goes up must come down.

“We are finally seeing the sharp falls in inflation which we expect to continue. VAT effects falling out of the year-on-year index, lower utility prices and weakening demand should exert strong downward pressure on inflation in 2012.

“Over recent years the inflation story has been all about overshooting. Looking ahead to 2013 it could be all about undershooting.”

He said the figures suggested that QE would be expanded in February.