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:
“Businesses and households will welcome the Bank's decision to err on the side of caution and hold interest rates today. It makes sense to get a clearer perspective on whether last quarter's subdued economic growth was just a flash in the pan or a sign of things to come.
“Snow certainly played a part in slowing retail, manufacturing, and construction activity in Q1, but even taking this into account growth still came in below the Bank’s expectations – and this goes some way toward explaining the MPC’s recent hot-cold communications.
“For now, the low interest rate environment provides an important back-stop for the economy. While directors’ outlook for employment and investment is certainly far rosier compared with last year, and consumer wallets are set to benefit from the drop in inflation, political headwinds make for a somewhat fragile optimism.
“Signs of wage growth will now be focal to whether the MPC raises interest rates in the summer, as this would indicate potential for higher domestic price pressures. But with high costs and weak productivity ailing SMEs, who account for 60% of employment, we shouldn’t hold our breath for a significant boost in workers’ wages.”