Chamber Reacts to Interest Rate Rise
Commenting on the Bank of England's decision to raise interest rates, Subrahmaniam Krishnan-Harihara, Head of Research at Greater Manchester Chamber of Commerce, said: “As widely expected, the Bank of England has increased the base rate to 3.5%. The rise is in line with the Bank's stated policy of raising interest rates to tackle inflation. In the last 12 months, the base rate has gone up from 0.25% to 3.5%. While inflation is the major challenge, the Bank does not have direct control over some of the causes of inflation as general commodity prices have been exacerbated by higher energy prices and geopolitical conflict.
“Whilst some businesses may be braced for higher interest rates, today’s increase to the interest rate will impact mortgage holders and push up borrowing costs for firms, both of which could worsen the impending recession. The Chamber's latest Quarterly Economic Survey (QES) showed that consumer spending and B2C services had improved in Greater Manchester in the lead up to the festive season. If higher mortgage payments were to squeeze household budgets further, there is the risk of a dramatic downturn in Q1 2023. The Chamber's QES also found that financing costs are now a worry for many businesses. Higher borrowing costs for businesses could dampen business investment.
"The Bank now faces the dilemma of reining in inflation while also not triggering an economic downturn. There are some signs that inflation has peaked and could come down in the coming months and when that happens, we would like to see the Bank not tighten monetary policy further. To enable that to happen, the conditions must be right to allow them to borrow for investing in capacity upgrades, workforce development and technology adoption."