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Lancashire Times
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2:22 PM 5th May 2022
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Business Leaders Welcome Bank’s Determination To Tackle High Inflation Expectations

 
Commenting on the decision of the Monetary Policy Committee of the Bank of England to raise interest rates from 0.75% to 1%, Kitty Ussher, Chief Economist of the Institute of Directors, commented:

“We welcome the Bank of England’s judgement that the need to tackle high expectations of inflation is of greater concern than the risk of curbing demand too fast in the short-term.

“Our own surveys show that only a third of our members currently expect inflation will come back to the Bank’s 2% target before 2024 and much of the current uncertainty business leaders are feeling comes from having to operate in an environment where prices are unstable.

“The Bank, however, has today said it expects inflation to be near the 2% target two years from now, which will be welcome to business leaders.

“The Bank has also signalled that further interest rate rises are on the cards, to around 2.5% this time next year. If, however, cost of living pressures cause households to rein back on discretionary spending, or further difficulties in our export markets cause British companies to suffer lower orders, this assumption may need to be revised.”


Suren Thiru, Head of Economics, at the British Chambers of Commerce (BCC), said:

“The decision to raise interest rates will cause considerable alarm among households and businesses given the rapidly deteriorating economic outlook and mounting cost pressures many are facing.

“The Bank of England face an unenviable trade-off between soaring inflation and a wilting economy. However, higher interest rates will do little to address the global headwinds and supply constraints driving this inflationary surge. It also raises the risk of recession by damaging confidence and intensifying the financial squeeze on businesses and consumers.

“With monetary policy continuing to tighten, it is vital the fiscal policy is now loosened to ease the crippling cost pressures faced by consumers and businesses, and to support wider economic activity. Urgent action is needed to limit the unprecedented surge in costs facing businesses, including financial support for those struggling with soaring energy bills.”


Alpesh Paleja, CBI Lead Economist, said:

“Another rise in interest rates is warranted, given the persistence of high inflation. However, the Monetary Policy Committee are walking an increasingly fine line. Further action to curb price pressures needs to be weighed against the increasing need to protect growth, particularly in light of a historic cost-of-living crunch. Households are feeling it and so are businesses, with cost pressures across the board.

“While monetary policy is the appropriate first line of defence in tackling inflation, government needs to take further action to shore up the broader resilience of the UK economy. In the near-term, higher inflation will hit poorer households hardest, so support measures for this group will need to be kept under review. Over the longer-term, securing greener energy supply and a relentless focus on raising potential growth will bolster our ability to withstand shocks and further price pressures”