Business leaders in the West Midlands have welcomed the decision to hold interest rates after Bank of England policymakers resisted pressure to curb rising inflation
In the week when Scottish Power announced an average hike of nearly £200 in annual power bills, members of the Monetary Policy Committee (MPC) have voted to keep the Bank’s base rate at 0.5% for the 27th month in a row.
The Birmingham Chamber of Commerce Group said it was the correct decision as GDP grew by just 0.5 per cent in the first three months of the year indicating that the economy remains weak.
President Christine Braddock added: “High inflation and increasing utility prices point to a rise at some point in 2011, possibly in November, but timing is crucial. As long as wage increases remain subdued, the MPC should hold its nerve for the time being.
“Our members continue to inform us that they are benefitting from the low interest rate. However, at the same time, inflation is currently the prime concern.”
Mike Ashton, spokesman for the West Midlands Chambers of Commerce, said: “To raise interest rates now could damage the resurgence in exports, particularly for manufacturers.
“The pound has devalued by around 25 per cent since the recession which means that British goods are cheaper in foreign markets so demand for luxury and high quality goods have continued to grow.”
Economists have put back the likely date for the next rise in rates to November as worries over growth prospects override concerns about inflation, which hit 4.5% in April, the highest level in two-and-a-half years.
Business leaders have welcomed the bank’s stance and warned a rate hike would throw the economic recovery off course, particularly after GDP figures for the first quarter of 2011 showed tepid growth of 0.5%.
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said the Bank of England’s Monetary Policy Committee was right to keep interest rates on hold.
She said: “This is the correct course of action. The UK economy needs low interest rates to continue, what has been so far, a fragile recovery from the recession.
“We understand the fact that inflation is higher than anyone would like but that is largely due to international pressures and there is certainly no case to say demand needs to be dampened in the UK.
“So while some may be uneasy about low interest rates in the face of higher inflation, it is the right thing to do for the economy and the recovery.”
Richard Halstead, Midlands region director of EEF, the manufacturers’ organisation, said: “This decision is no surprise as even though inflation is still coming in uncomfortably high, the medium-term economic picture remains murky. With weak underlying growth, ongoing Eurozone troubles and volatile commodity markets, it is still too early for a rate rise.
“The more interesting news is likely to come later this month when we see if the new member shifts the balance of views on the committee. However, it still seems a move on rates will not be forthcoming until the economic outlook becomes much clearer.”
Mark Smith, regional chairman at PwC in the Midlands, said: “What Midlands businesses need most is stability and we would urge the Committee to continue to hold its nerve and keep rates on hold until economic recovery is more firmly established.”
