Call to avoid 'hasty' rate rise

Tuesday 08 July 2014

The Bank of England should avoid any "hasty" move to raise interest rates after figures showed signs of a growth slowdown in some sectors of the economy, a leading business group warned today. Figures compiled by the British Chambers of Commerce (BCC) for the second quarter of the year showed an increased risk to the UK's prospects, it said.

They revealed that some indicators of manufacturing and services performance eased following a surge earlier in the year. BCC director general John Longworth said: "These results reinforce the case against the Bank of England making any hasty decisions on raising interest rates in the very short term."

The figures showed indicators on export sales and orders in the dominant services sector slipped from all-time highs achieved in the first quarter.

Some manufacturing data hit new peaks in the second quarter, but not in as many areas as last time.

Both sectors showed declines in exports and investment growth levels, though these were still above pre-recession levels in 2007.

The survey revealed that concerns about interest rate rises also grew during a period when Bank of England governor Mark Carney warned they could go up sooner than had been expected. The next meeting of the Bank's Monetary Policy Committee concludes on Thursday.

Mr Longworth said the poll of 7,000 firms showed the recovery was moving forward and that a modest decline in investment and exports after they "jolted forward" in the first quarter was unsurprising.

But he warned that a "broken business finance system" constraining access to funds needed by firms for growth must be fixed.

He added that an early rate rise would drive up the cost of credit for fast-growing businesses, resulting in limited growth ambitions for the companies being relied upon to drive the recovery.

Mr Longworth said: "We must nurture the business confidence we are seeing at present by giving firms the security of working in a low interest rate environment for the foreseeable future - with eventual rises both moderate and predictable.

"At this crucial stage of the economic cycle, the UK cannot afford populist decision-making that undermines strategic long-term decisions as this could jeopardise our national success in the years to come."

Official figures at the end of last month confirmed that the UK economy grew by 0.8% in the first quarter of 2014, amid a bigger than expected surge in business investment.

BCC chief economist David Kern said: "Although most key balances for the second quarter are lower than the very strong figures seen in the first quarter, they remain high by historical standards.

"In our recent economic forecast, we predicted that quarterly GDP growth for the second quarter would be 0.8%, with full-year growth of 3.1%. However, these results mean that risks of a downgrade have increased."