IoD press release Interest rate rise is least-worst option in the interests of overall macroeconomic stability
Commenting on the decision of the Monetary Policy Committee of the Bank of England to raise interest rates by 0.75 percentage points to 3%, Kitty Ussher, Chief Economist of the Institute of Directors, said:
“Our data shows business leaders think inflation has not yet peaked, but many think it may do so in Spring 2023. Today’s rise, which is in line with expectations, is therefore the least-worst option, to anchor inflation expectations firmly at a lower level in the interests of overall macroeconomic stability. In the long term, stable prices are an essential backdrop for a healthy business operating environment.
“Of course, raising the cost of borrowing also deters business investment, choking off growth. As we get into the New Year, the Bank of England needs to be careful not to overshoot in its response, risking a longer fall in demand than is necessary.
“In both the future scenarios that the Bank has considered, inflation undershoots its target towards the end of the forecast period. Given that that they also expect the peak to come ‘early next year’, it may be that the end of the tightening cycle is now coming into sight.”
The latest IoD survey data for October 2022 shows that the most common view among business leaders of when inflation will peak is Spring 2023 (30%), but around half (53%) think it will peak later than that.
Full survey results
656 responses, conducted between 10th-27th October 2022
At what point, if at all, do you expect the rate of inflation in the UK to peak before starting to fall back again?
