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Interest rates should not be used as a short-term measure for inflation, says FSB

The Bank of England must keep the base rate at 0.5% until at least the third quarter of 2011, says the Federation of Small Businesses (FSB).

In addition the organisation has urged the Government to make this possible by introducing a true fuel stabiliser and signal that consumer taxes will not rise again.

The FSB said that recent economic data has shown a weakening in manufacturing output and only a modest improvement in GDP and inflation.

They believe that this combined with the additional strain on the consumer as prices rise and wages not growing in-line with inflation will pile on the pressure for the nation’s 4.8 million small firms.

John Walker, national chairman, FSB, said: “The problems facing the economy at the moment are worrying for small firms and we are pleased that interest rates were held at 0.5 per cent last week.

“We understand that rates need to rise to tackle inflation, but with businesses cash-flow and order books low and the consumer already facing a higher cost of living, it could be to the detriment of the small firms that are needed to strengthen the recovery.”

Small firms’ confidence grew in the first quarter from -13.2 at the end of 2010 to +6.7, and the FSB believes that by reassessing the economic picture in the third quarter of 2011, would allow time to cement this growing optimism as well as ensuring that GDP and inflation continue to move in the right direction.

He added: “Growth and inflation have started to move in the right direction – according to data from the Office for National Statistics, it is the affect of the VAT increase which is the biggest driver of inflation at present.

“We believe that before a rate rise can be fully considered that we need to see entrenched economic growth.

“As fuel is having a major impact on both businesses and the consumer we urge the Government to reassess its fuel stabiliser, announced in the Budget, so that it triggers an actual reduction in the duty paid.”

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