A call for a rise in interest rates is seen by the British Chambers of Commerce as unjustified and dangerous. The BCC believes that business confidence is fragile and heavily dependent on consumer spending.
Reacting to the publication by the Bank of England of its May 2006 Inflation Report, David Kern, Economic Adviser to the British Chambers of Commerce, said, "The MPC’s projections for growth and inflation support our assessment that interest rate increases could be very damaging to business at the moment."
"The MPC's expectation that GDP is likely to continue to grow at around its long-run historical average assumes below-average growth in consumer spending, coupled with an improvement in business investment and net exports."
"The Committee's inflation projection also supports the view that any rise in CPI inflation in the next few months is likely be temporary. Recent increases in domestic gas and electricity prices are already squeezing personal disposable incomes."
Mr. Kern concluded: "Given the very fragile current upturn in the economy a rise in interest rates would seriously damage business confidence and push the upturn into reverse. Any growth forecast that relies on investment and exports taking over from the consumer as the main UK growth driver will simply not materialise if interest rates were to go up."
"While we are not calling for an immediate interest rate cut, we expect the Bank of England to react quickly to signs of weakness in the economy."
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British Chamber of Commerce