BCC states that interest rate must be cut
After several months where the interest rate has been left on hold at 5% by the Monetary Policy Committee and the Bank of England, the British Chambers of Commerce is now calling for action, stating that the base rate has to be cut in order to ensure that the economy does not grind to a halt. The government is facing tough decisions when it comes to the base rate, as the nation is going through a period of stagflation, where the economy has slowed down and stagnated and the level of inflation is soaring way out of control.
At present the rate of inflation has hit 4.4% for July and there have been predictions from the governor of the Bank of England, Mervyn King, that the base rate could reach 5 or even 6% by the end of the year. At the same time the global credit crunch, tighter credit conditions, and soaring living costs have resulted in the economy taking a real hit, and there has been a real slowdown in the economy over recent months. This combination has resulted in severe difficulties for MPC members when it comes to setting the base rate.
Since April of this year the base rate has remained on hold at 5%, having been cut three times between December of last year and April of this year. However, officials from the British Chambers of Commerce have now stated that the government needs to take action and cut the interest rate, as otherwise the economy could slide into recession in the next six to nine months. However, BCC officials did also add that it was unlikely that there would be a recession on the same scale as was seen in the early 1990s.
An economist from the BCC said: ‘The longer the Monetary Policy Committee waits before cutting rates, the bigger the danger that the economic situation could deteriorate. The level of UK unemployment is likely to increase to nearly 300,000 over the next few years, reaching almost two million.’ He added: ‘The main drivers of the UK slowdown will be a very sharp deceleration in consumer spending growth as households tighten their belts amid soaring bills and falling house prices.’
Officials from the Chelsea Building Society have also predicted that the rate of inflation is likely to soar further in the imminent future, having already soared to more than double the target rate set by the government, which is 2%.
Tags: interest rate, bank of england, base, interest rates, British Chambers of Commerce, chelsea building society, UK unemployment, consumer spendingOne official from Chelsea said: ‘The potential increase of inflation to almost 7% will create a real strain for the average man and woman. Fuel hikes, food increases and rental demands are forcing people to find further ways to afford life’s essentials. Chelsea has also seen some evidence of people who are now dipping into their savings to pay for bills and this looks set to continue. In tough times, it becomes even more important for people to manage their money effectively and adapt their savings habits.’
