BCC still calling for base rate cuts
September 22, 2008
Since April of this year the Bank of England and the Monetary Policy Committee have left interest rates on hold at 5% despite the slowing economy and fears over the nation sliding into recession. The reason for this has been the rocketing rate of inflation, which has now broken records and stormed to 4.4%, which is over double the government target of 2%. Moreover, officials expect the rate of inflation to rocket even further over the remainder of this year, with the Governor of the Bank of England, Mervyn King, predicting that it could rise to 5% or even 6% by the end of the year.
However, some industry groups, including the British Chambers of Commerce, are calling for the base rate to be cut, stating that the government now needs to prioritise on the slowing economy. Officials from the BCC have said that the central bank must now cut interest rates in order to keep recession at bay. The BCC predicts that the nation could slide into recession within the next six to nine months unless the base rate is cut.
One official 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.’
In the meantime officials from Chelsea Building Society have said that if the rate of inflation reaches 7% household bills could be set to soar by an average £2500 per anum. This sort of increase is likely to tip many households over the financial edge.
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