Responding to the Bank of England’s decision to hold interest rates at 0.5% this month, Tej Parikh, Senior Economist at the Institute of Directors said:
“After rocking the boat last month, the Bank of England’s decision to hold the interest rate, though not unexpected, is welcome.
“Inflation has reached a near six-year high and the data points to reducing slack in the labour market, but it’s still too early to wean the economy off low interest rates. That’s because, firstly, price increases are likely to have peaked over this quarter anyway – as the inflationary effect of the weaker currency passes through – and secondly low interest rates provide an important lifeline for belt-tightening households and businesses in a period of uncertainty
“Workers continue to see limited growth in their pay packets, which is acting as a straitjacket on consumer spending, whilst businesses are struggling to find the additional capacity to accommodate inflation-busting wages. Meanwhile, despite progress on Brexit negotiations, much work is still to be done to lift firms’ optimism.
“As such, lower for longer should be the Bank’s mantra for the time being: It’s absolutely vital now to keep the cost of credit low whilst households are squeezed and businesses navigate ongoing investment uncertainty.”