Business groups respond to interest rates rise

03 Aug 2018

Business groups, including the Confederation of British Industry (CBI), the British Chambers of Commerce (BCC) and the Institute of Directors (IoD) have responded to the Bank of England’s decision to raise interest rates for the second time in a decade.

Members of the Bank’s Monetary Policy Committee (MPC) voted to raise interest rates from 0.5% to 0.75% – representing the highest level since March 2009. Bank of England Governor Mark Carney has suggested that additional ‘gradual’ rate rises could be implemented in the future.

Commenting on the rise, Alpesh Paleja, Principal Economist at the CBI, said: ‘The case for another rate rise has been building, with inflationary pressures being stoked by a tight labour market and many indicators now suggesting that weak activity in the first quarter of 2018 was a blip.’

Meanwhile, the BCC did not welcome the rise, and called for a ‘sustained period of monetary stability’. In its statement, the business group said: ‘The decision to raise interest rates, while expected, looks ill-judged against a backdrop of a sluggish economy. While a quarter point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence at a time of significant political and economic uncertainty.’

The IoD also warned that the rise in interest rates could have an impact on confidence levels. Tej Parikh, Senior Economist at the Institute, stated: ‘The rise threatens to dampen consumer and business confidence at an already fragile time.

‘The MPC would have done well to hold off until its November meeting, allowing it to account for October’s all-important Brexit deadlines. But in reality, the Bank had tied its hands with recent communications, and the rate hike will come as little surprise.’

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