Member Article

British Chambers warn interest rate rise could limit growth

The head of the British Chambers of Commerce has warned the Bank of England against “premature” interest rate rises, say it could limit growth on firms the country is counting on.

As part of the Chamber’s Quarterly Economic Survey, John Longworth said a rise now could “limit the growth ambitions among the very firms we are counting on to drive the recovery.”

The Chamber said its survey of 7,000 businesses showed key indicators were pointing in the right direction for recovery, with some indicators higher than they were before recession.

In manufacturing, three balances were at their all-time highs in Q2 2014: domestic sales (+42%), profitability confidence (+51%) andcapacity utilisation (46%).

Concerns around interest rate rises were higher in Q2 than in Q1: 18% of manufacturing businesses expressed concern about interest rate increases in Q2 compared with 16% in Q1, and the figure among service sector businesses rose to 22% compared with 18% last quarter.

Mr Longworth said: “These results reinforce the case against the Bank of England making any hasty decisions on raising interest rates in the very short-term.

“By driving up the cost of credit for fast-growing firms, many of whom do not sit on the same healthy cash piles as their more established counterparts, early rate rises may mean more limited growth ambitions among the very firms we are counting on to drive the recovery.

“We must nurture the business confidence we are seeing at present by giving firms the security of working in a low interest rate environment for the foreseeable future – with eventual rises both moderate and predictable.

“As we enter a period of heightened political uncertainty, it is even more important to maintain a healthy and sustainable economic recovery. At this crucial stage of the economic cycle, the UK cannot afford populist decision-making that undermines strategic long-term decisions as this could jeopardise our national success in the years to come.”

This was posted in Bdaily's Members' News section by Tom Keighley .