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Bank has ‘jumped the gun’ with interest rate rise

02 Aug 2018

Responding to the Bank of England’s decision to raise interest rates to 0.75%, Tej Parikh, Senior Economist at the Institute of Directors, said:

“The Bank has jumped the gun with the today’s rate hike. The rise threatens to dampen consumer and business confidence at an already fragile time.

“Growth has remained subdued, and the recent partial rebound is the least that could be expected after the lack of progress in the year’s first quarter. At present it’s unclear just how sustained any rises in pay will be, and even if we are to see strong wage growth, the impact on inflation could be limited by the need for consumers to meet borrowing costs.

“Undoubtedly, Brexit remains a crucial factor, affecting directors’ investment decisions, while sterling is sensitive to the back-and-forth of the negotiation process. The MPC would have done well to hold off until its November meeting, allowing it to account for the October’s all-important Brexit deadlines, and get a firmer grasp on the broader trend in wage increases. But in reality, the Bank had tied its hands with recent communications, and the rate hike will come as little surprise.”

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