Tuesday, October 4, 2022

Interest rates rise to 2.25%

The Bank of England has further raised interest rates, from 1.75% to 2.25% – seeing the base rate grow to the highest level in 14 years.

It comes as the Bank of England continues to battle severe inflation, a top business concern impacting investment intentions. The decision however will increase the risk for firms exposed to increasing mortgage costs and debt burdens.

“The decision by the Bank of England to raise the base rate to 2.25% is further evidence they are taking a hard line on tackling inflation,” said David Bharier, head of research at the British Chambers of Commerce. ”Our research shows that unrelenting inflation, largely driven by rising energy costs, is by far and away the top business concern at present.

“But the Bank faces an increasingly tricky balancing act. The interest rate is a very blunt instrument to control inflationary pressures that are largely driven by rocketing energy costs and global supply chain disruption. The Bank’s decision to raise rates will increase the risk for individuals and organisations exposed to debt burdens and rising mortgage costs – dampening consumer confidence.

“Recent energy price cap announcements will have provided some comfort to businesses and households alike and should place downward pressure on the rate of inflation.

“Friday’s fiscal statement by the Chancellor is now a critical moment. He has the unenviable task of shoring up the economy whilst avoiding additional inflationary stimulus.

“The Bank, looking to dampen consumer demand, and Government, looking to increase growth, could now be pulling in opposite directions.

“What businesses will want to see is a plan to address the short-term drivers of inflation as well as a long-term strategy to promote investment that gives them confidence for the future and counteracts the recessionary pull of rising interest rates.”

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