Business leaders urge MPC to keep rates down to cash in on inflation

BUSINESS leaders in the West Midlands have called on Bank of England policymakers to keep interest rates low to capitalise on the latest fall in inflation.

Latest figures from the Office for National Statistics show the rate of inflation fell 0.2% to 2.8% last month, confounding many analysts who were predicting the figures would remain as they were.

The ONS data also revealed that the retail price index dropped to 3.1%.  

The figures were largely due to a fall in food and fuel prices but Birmingham Chamber of Commerce warned that restoring inflation to the Bank of England’s target of 2% was proving more difficult than anticipated.

President Michael Ward said: “While inflation has fallen back significantly since last September’s high of 5.2%, it is likely to remain above 2% for the next 12 months.  

“The announcement of a drop is largely credited to fuel and food prices coming down so it is vital that the Bank of England recognises the importance of low interest rates in allowing businesses to remain competitive through this period of high inflation.  

“We urge the Monetary Policy Committee to keep interest rates at their current levels for the foreseeable future.”

The Institute of Directors for the West Midlands said business confidence was at a critical stage and the fall in the rate of inflation was an encouraging step in the right direction.

However, John Rider, regional chairman of the IoD, said more could be done to bolster confidence.

“We need to see that the money given by the Bank of England to the banks to lend to businesses at reasonable rates actually reaches those who need it,” he said.

“In many cases, because of the need to refer every loan decision to a credit committee, it takes several months for a decision to come down from on high, when it is in days, not even weeks, that businesses need decisions if they are to turn their plans into action and take advantage of market opportunities as they occur.

“Of course we do not want to see a return to reckless lending, but the pendulum has swung too far the other way.”

He said that although inflation had come down a further 0.2% this was largely due to the downward pressure from petrol and oil and food.

“For West Midlands companies wanting to export, air travel price increases are a major drag and extra costs such as Air Passenger Duty are not helping this country build its business abroad.

“We have to get the economy moving and while a drop in the inflation rate is welcomed, there is still much to be done on ensuring that bank credit reaches the businesses that need it, that companies are encouraged to recruit and that they feel they can reach out abroad without being unfairly penalised as they do so,” he added.