Member Article

Rates rise provokes mixed response

The Bank of England has raised UK interest rates from 5.5% to 5.75%, its fifth rate rise since last August. Its Monetary Policy Committee (MPC) warned that inflation remains a danger, saying that “most indicators of pricing pressure remain elevated”. Reaction from business leaders in the North East was mixed.

Sarah Green, CBI Regional Director, yesterday said: “A further rise today was widely expected, and the Bank is clearly taking a tougher stance now to avoid the risk of more tightening later in the year. This is the fifth rate rise in a year and there are growing signs that the medicine is starting to work. Wage growth has stayed subdued, the housing market appears to be slowing, and high street sales growth is weakening. A slower economy later this year would make it unlikely that the recent ability of companies to push up prices will endure. Businesses are concerned that any move to six per cent would be overkill, so now is the time for the Bank to leave a long pause to allow the economy to adapt to these new levels.”

Alan Hall, Director of manufacturers’ organisation EEF Northern, said: “The previous rises in rates were needed to bring the level and expectations of inflation under control. However, we believe that today’s increase is a step too far and risks slowing the economy unnecessarily. Manufacturers will also be concerned that that today’s rise in rates, and expectations of more to follow, will increase the pressure on exporters exerted by the pound’s strength against the dollar.”

Paul Woolston, senior partner at PricewaterhouseCoopers LLP in Newcastle, said: “This wasn’t a surprising decision, but the rise will come as a particular blow to those who have been persuaded to borrow heavily to get onto the housing ladder. The economy is strong and there is, undoubtedly, a need to temper inflation. “We can only hope that the MPC decision will not have laid the basis for a recession of some kind next year.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .