IoD press release Bank of England cuts rate but highlights inflation risks
Commenting on the decision of the Monetary Policy Committee of the Bank of England to reduce interest rates to 4.5%, Anna Leach, Chief Economist of the Institute of Directors, said:
“All members of the MPC voted for rates to be cut today, with the only difference of opinion being how much to cut by: 7 voted for a 25bp cut, with 2 voting for 50bp cut. However, today’s read-out presents a worrying outlook for the UK, with inflation now projected to reach 3.7% in Q3 this year, and the economy now likely to have shrunk at the end of last year. This is accompanied by the view that “a gradual and careful approach to the further withdrawal of monetary policy restraint is appropriate”. All in all, with inflation up and growth down, stagflation risks remain on the table.
“The MPC is rightly focussed on driving out inflationary pressures in the economy, but the reality for businesses is that they’re facing double pressure on costs from higher taxes and restrictive interest rates. This amplifies the pressure on government to deliver growth. Whilst the government is rightly focussed on increasing investment to improve the UK’s potential growth, the reality is that decisions made last year have significantly undermined momentum and will affect levels of private investment for years to come. As well as progressing swiftly with plans to unblock private sector investment through regulation and planning reform, the government should urgently reconsider the additional burdens placed on businesses last year, particularly employment regulations and pernicious tax changes affecting family firms, farms and non-doms.”
