Interest rate cuts called for by BCC
January 25, 2008
Following the Bank of England’s decision to keep interest rates on hold for January, the British Chambers of Commerce has called for further modest interest rate cuts in order to avoid a marked slowdown in the economy. After the Monetary Policy Committee meeting earlier this month the Bank announced that interest rates would be kept on hold at 5.5%, and this disappointed many consumers and industry bodies who had been expecting an interest rate cut.
It is currently difficult for the Bank of England to determine whether to keep rate steady or cut them, because there are repercussions to consider with both courses of action. If interest rates are cut, consumer spending and borrowing will rise and this could cause further rises in inflation, which is already stuck at over the target 2% due to rising energy and food costs. However, if the rates are not cut then there could be a significant slowdown in the economy, which has already taken a battering at the end of last year.
Officials from the BCC have stated that although there is no imminent recession threat the economy could be significantly affected if interest rates are not cut by at least a modest amount. Many experts are now expecting the Bank of England to cut interest rates after the February Monetary Policy Committee meeting.
One official from the BCC said that he understood the difficulties that the Bank of England and the MPC faced when making a decision about interest rate movement, given the concerns about both the economy and inflation to consider. He added that even a small rate cut could help to ease the credit squeeze and loosen the financial markets up more.
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