• Swindon & Wiltshire News
• Thursday March 23 2023
• Author Name: Peter Davison

‘Let this rate rise be the last’ plead business leaders

Today’s Bank of England decision to increase the base rate from four per cent to 4.25 per cent has been met with dismay by business leaders.

The decision was taken following yesterday’s surprise inflation figures from the Office for National Statistics, which show CPI at 10.4 per cent.

The Federation of Small Businesses said small businesses are caught between high inflation and rising rates, with end of energy support looming.

National chair Martin McTague said: “Small businesses are counting on today’s rise in the base rate to be the peak, as the Bank of England predicts a steeper than anticipated fall in inflation, even following the unexpected rise we saw earlier this week.

“Inflation is exacting huge tolls on small firms, who are even more exposed to spiralling input costs than large businesses, as they lack big corporates’ buying power and the ability to hedge prices. Continuing high inflation is undermining business confidence, and is an especially hard pill to swallow when small firms had been anticipating that it was beginning to be reined in.

“This latest increase in the base rate means more worries for small firms carrying debts with floating rates, and will make it that bit harder for ambitious businesses to get the funds they need to grow, to pay for a new bit of kit, an extra shop, or a training programme.

David Bharier, head of research at the British Chambers of Commerce, said: “Today’s decision to increase the interest rate indicates the Bank are still pursuing strong action following yesterday’s surprise rise in inflation. Record high inflation remains the top issue of concern for SMEs, and it has been wiping out their ability to invest and grow for almost two years now.

“However, an interest rate rise alone is a blunt instrument that doesn’t address some of the fundamental causes of inflation such as failure in the energy market and global supply chain shocks.

“The cost-of-living crisis and the cost of doing business crisis are two sides of the same coin and SMEs, like consumers, are getting hit from both rising prices and rising borrowing costs. The only way out of this vicious cycle is through taking action to boost economic growth, through investment in infrastructure, skills, and global trade.”

And Anna Leach, deputy chief economist at the CBI, said: “The interest rate decision was a tricky one for the MPC, taking place against the backdrop of recent global financial market turbulence, a surprise rise in domestic inflation, and a Budget which provided more support for the economy.

“The choice to raise rates to 4.25 per cent comes against a backdrop of stronger-than-expected activity so far this year, and strong domestic inflation.

“The MPC will also have an eye to the recent turmoil in the banking sector. While financial stability is the remit of the FPC, an excessive tightening in credit conditions for businesses and households arising from financial market turbulence could cause the MPC to reconsider the level of interest rates in future months.”

The Bank of England said: “The extent to which domestic inflationary pressures ease will depend on the evolution of the economy, including the impact of the significant increases in Bank Rate so far. Uncertainties around the financial and economic outlook have risen.

“The Monetary Policy Committee will continue to monitor closely indications of persistent inflationary pressures, including the tightness of labour market conditions and the behaviour of wage growth and services inflation. If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”