BoE pressured to raise interest rates to slow down inflation

As more and more pressure is exerted upon the Bank of England’s Monetary Policy Committee to raise interest rates, many borrowers with business loans may see their monthly repayments begin to rise over the next 12 months.

The Consumer Prices Index rose last month to a new high of 3.7 per cent, nearly twice as high as the government’s 2 per cent target.  Many industry experts have been predicting that the MPC will begin to raise their 0.5 per cent base rate in an effort to reduce inflation, which could send business bank accounts further into the red through higher loan repayments.

The base rate’s record 0.5 per cent row has persisted for almost two years straight.  This has been a relief to many firms with variable rate business loans as their repayments have remained relatively low.  However amid the 20 per cent VAT increase that went into effect this month, fears abound that inflation could continue to rise.

The inflation increase was also blamed on several different factors such as soaring air transport and fuel prices, higher utility bills, and food costs.

One industry expert commented that the BoE is encountering mounting pressure to enact a nominal interest rate hike at the very least.  This is despite the fact that such fiscal tightening would run significant risks to economic growth, the expert added.  Instead a rate hike coming from the MPC would send the message that the committee is taking proactive steps to normalise the country’s rate of inflation.

Such a decision would be a mistake however warned the British Chambers of Commerce.  A spokesperson for the organisation stated that raising interest rates should be avoided while there is a tightening in fiscal policy that can lead to individuals and businesses facing greater pressures.

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