The British Chambers of Commerce has supported the MPC’s decision not to raise interests rates this month but has also expressed concern over the longer-term intentions. The effects of the last five interest rates are only just beginning to show and it may not be necessary to introduce another increase this year.
David Kern, Economic Adviser to the British Chambers of Commerce, said, “British business supports the MPC's decision to keep the interest rate unchanged at 5.75%. As many businesses begin recovering from the floods and while the world’s credit markets are facing worsening problems, it would have been inconceivable to contemplate an increase in rates in such circumstances.
“But we remain very concerned that the markets still expect an increase in rates later in the year. We believe there are very strong arguments for the MPC to wait, and allow time for previous increases to have their full effect. There are already signs that the housing market is softening. The slowdown in average earnings growth strengthens further the case for waiting. The MPC risks raising rates too far, if it does not decide to wait for a few months
“After five interest rate increases over the last twelve months, the pressures facing UK businesses will inevitably worsen. The economy is set to slow sharply in 2008 even if rates are kept at their present level. There is now a genuine risk of overkill. We urge the MPC to adopt a cautious stance, and avoid an overreaction, which could cause serious economic damage.”
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British Chamber of Commerce