North East Post
A Voice of the Free Press
2:21 PM 14th December 2023

Tough Year Ahead As Interest Rate Stays High

Image by Pete Linforth from Pixabay
Image by Pete Linforth from Pixabay
Bank of England Monetary Policy Committee hold interest rates 5.25 per cent. Here's what business says...

Reacting to the latest Bank of England interest rate decision, David Bharier, Head of Research at the British Chambers of Commerce, said:

“While a cut in the interest rate could have provided some relief for firms ahead of Christmas, today's decision to hold it at 5.25% was expected and allays fears of further rises.

“UK businesses have been faced with the twin shock of an inflation crisis and increased borrowing costs. Around half of the businesses we survey report a direct negative impact from the current interest rate, while only around one in ten see a benefit.

“The BCC’s latest Economic Forecast expects only a 0.25% point cut in the interest rate for the whole of 2024, although businesses need to be prepared for any unexpected changes given the uncertain policy landscape.

“SMEs have been operating in an uncertain climate for too long, with policies constantly chopping and changing over the past few years. They need to see clear direction from decision makers, creating a roadmap for business that boosts confidence and investment.”

Bank of England keeping interest rates higher for longer than necessary, says IEA economist Julian Jessop, Economics Fellow at free market think tank the Institute of Economic Affairs:

"The Bank of England’s decision to keep interest rates on hold, despite the rising risks of a recession, is not completely bonkers. The Monetary Policy Committee’s job is to worry about inflation, not growth, and inflation is still well above its 2 per cent target.

"Nonetheless, there is a clear risk that the Bank will keep rates higher for longer than is either necessary or desirable. Almost every leading indicator of inflation is pointing firmly downwards, including money and credit, producer prices, and global energy costs.

"The MPC’s fears about a ‘wage-price spiral’ are also overdone. In reality, wages are only catching up with prices, and there is already evidence that pay pressures are easing.

"Unfortunately, the Bank currently lacks the confidence or the credibility to cut interest rates until it is certain that inflation is back under control. By then, it may be too late to prevent a prolonged slump. Hopefully the markets will force the Bank's hand. Indeed, bond yields and mortgage costs are already falling as investors anticipate rate cuts from other central banks, led by the US Fed."

Anna Leach, CBI Deputy Chief Economist, said:

“The decision to once again hold rates at 5.25% is perfectly in line with expectations, including the CBI’s own economic forecast. Although inflation has halved over the year, enabling the Prime Minister to meet his New Year pledges, hitting the 2% target is still some way off. We expect this to happen around mid-2025.

“A year of better-than-expected – albeit lacklustre – growth, sticky domestic inflation, high wage growth and uncertainty over energy prices have all played their part in necessitating higher-for-longer rates. While the US Federal Bank is in the welcome position of being able to signal that rates will fall soon, that isn’t the case here in the UK.

“2024 is set to be another year of weak growth for the UK, as the pressure of higher interest rates continues to erode household spending power and add to business cost pressures.

“While the Autumn Statement delivered some valuable support for business investment, particularly the announcement of full expensing, businesses will still have to contend with significant skill and labour shortages – which themselves add to costs and impede important investment.

“Long overdue reform of the Apprenticeship Levy would go some way to helping ease these pressures and ensure firms can access the people and skills they need to grow.”