Written by: Keith Tully
Reviewed: Thursday 2nd August, 2018
The Bank of England’s decision to increase its base rate of interest could serve to undermine confidence among businesses at a time of “significant political and economic uncertainty”.
That’s according to the British Chambers of Commerce (BCC), which has described the early-August interest rate rise as being “ill-judged against a backdrop of a sluggish economy”.
For its part, the Bank of England’s monetary policy committee (MPC) was unanimous in voting to see interest rates increase by a quarter point from 0.5 per cent to 0.75 per cent, which now puts the base rate at its highest level since the financial crisis of a decade ago.
The committee has not been unanimous in voting in a rise in interest rates since May 2007, when they were increased to 5.5 per cent.
Statements from the Bank suggest that its MPC members are at least somewhat concerned by the potential for Brexit to have a damaging impact on the state of the UK economy in forthcoming quarters.
“The MPC continues to recognise that the economic outlook could be influenced significantly by the response of households, businesses and financial markets to developments related to the process of EU withdrawal,” it said in a statement.
The BCC has said that the Bank is “overly focused on reinforcing an idealised direction for rates, rather than on economic reality”.
“While a quarter point rise may have a limited long-term financial impact on most businesses, it risks undermining confidence,” the lobbying group has said.
“The MPC must carefully consider what happens next. The most preferential option would be for a sustained period of monetary stability amid the current economic and political uncertainty.”
Along with details about the thinking underlying its decision to raise interest rates, the Bank of England has revealed its latest views on prospects for the UK economy, with its projections for next year adjusted up to suggest that GDP is now expected to grow by 1.8 per cent during 2019.
Nevertheless, there are signs that many thousands of businesses across the country are struggling to maintain cash flows and avoid insolvency.
The latest figures on the subject from the insolvency specialists at Begbies Traynor suggest that there were as many as 472,183 UK companies who experienced “significant financial distress” during the three months prior to the end of June 2018.
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