The Bank of England has recently been urged to refrain from raising interest rates and increase the pressure on firms as the latest inflation figures are revealed.
Official figures recently revealed that the Consumer Prices Index rose to a new high of 3.7 per cent last month. The CPI has been rising steadily and has been above the Bank of England’s 2 per cent target for many months.
Advisory service firm KPMG’s UK chief economist, Andrew Smith, issued a warning against rash decisions being made by business bank account providers in the wake of rising inflation rates. He states that raising interest rates would make it even more difficult for firms to secure business loans from financial services providers in the UK.
Mr Smith added that although the policy rates set by the Bank of England have been declining, lending rates have not seen a similar drop. Businesses are therefore paying substantially higher rates relative to the lower policy rate, the chief economist remarked.
The British Chambers of Commerce agrees with the KPMG UK economist. BCC chief economist, David Kern, insists that raising rates of interest would be the wrong move on the part of the Bank of England.
Mr Kern stated that not only would an early rate increase have no significant effect on short term inflation rates, it runs the risk of derailing economic recovery efforts. The BCC economist also stated that raising rates would increase the difficulty of implementing the government’s deficit-cutting programme as well.
When asked to pinpoint the source of the runaway inflation rates, Mr Smith attributed it to both the declining value of the pound and the decision by the government to increase indirect taxes.
The chief economist stated that there are special factors responsible for the high inflation rate, though over time he expected them to unwind.