Chamber urges hold on interest rates

Greater Manchester Chamber of Commerce is urging the Bank of England to hold interest rates and resist injecting more money into the economy.

Dr Brian Sloan, Chief Economist at Greater Manchester Chamber of Commerce, said: “The Bank has only just completed the purchase of assets from the last round of quantitative easing and there are some encouraging signs that the economy is performing better in the first quarter of the year, so we believe that there is time to wait and evaluate the impact of the recent £75bn injection. The Bank should resist any moves this month.

“Although there is an argument that a weaker pound will help exporters, the downside is the inflationary effect. At the Chamber’s Economic Committee meeting held Tuesday 7th February, members commented how raw material prices have responded during the global slowdown, yet minds were clearly focused on the positive news emerging from recent indicators. Whilst the UK itself experiences low growth, a pickup in global growth will see raw material prices rise again and we could find ourselves back in an inflationary cycle with the possibility that interest rates may need to rise sooner than many are currently predicting.

“Any upward pressure on inflation as a result of increasing asset purchases would increase business input prices and continue to hit consumers as they continue to be squeezed by inflation. Inflation should be allowed to fall to help sustain consumer demand as the rebalancing of the economy is taking time.

“The Government and Bank of England need to work collaboratively to ensure that there is growth in the regions. The only circumstance under which the Bank should consider further asset purchases is if these have a regional dimension. The asset purchasing programme pursued by the Bank of England to date has had an impact at the macro level of the economy but it has done absolutely nothing for the country’s regional economies. To this end the Bank has chosen to ignore the Government’s objective of rebalancing the economy towards the reason, as laid down by the Chancellor in a letter to the to the Governor of the Bank of England last March. Whilst I can accept that the current economic climate warrants the Bank permitting inflation to run well above the 2% target, simply ignoring the regional economies that offer a vast potential for long term growth through infrastructure investment seems complacent.”