BCC says BoE’s talk of a potential rate hike is ‘ill judged’

Written by Oliver Wade
09/07/2018

The Bank of England’s talk over a potential interest rate increase is “ill judged”, according to the British Chamber of Commerce (BCC), as new data indicated continued sluggish growth in the UK economy.

A poll of more than 6,000 firms from the BCC revealed that the balance of firms revelling in increased sales picked up slightly in the second quarter of 2018, with a balance of 23 per cent of services firms selling more. However, forward-looking indicators were weaker, with the number of firms who say they plan to increase investment falling.

Some members of the BoE’s rate-setting Monetary Policy Committee (MPC), including governor Mark Carney, have argued that wage growth will add to inflation in the medium term. This will result in the bank being forced to increase interest rates to combat the inflationary pressures which would build across the economy, the MPC hawks have argued. Meanwhile, the bank’s economists believe that the weakness experienced in the first quarter of 2018 was just a blip.

BCC head of economics Suren Thiru said that economic conditions currently remain “subdued” ahead of the next MPC meeting scheduled for 2 August 2018.

The increase in domestic sales in the second quarter suggested that growth improved in line with economists’ expectations, but indicators of a sustained upturn are limited amid falling business confidence, the BCC said.

“The BoE’s recent rhetoric around raising interest rates continues to look ill judged. With the UK economy seemingly stuck on a low growth path and inflation easing, it would be prudent for the MPC to provide greater monetary stability rather than undermining the UK’s growth prospects further,” Thiru said.

Economists predicted GDP growth to rebound to a 0.4 per cent quarterly rate in the second quarter, according to consensus figures collected by the Treasury. In the first quarter of 2018, growth plummeted to 0.2 per cent.

Separate data that is due to be published today by accountancy firm BDO will reveal that firms’ output continued to grow in June, but at the slowest rate seen since December 2012.

BDO’s index measures UK business output , and recorded a reading of 98.58 points in May and 97.29 in June, both falling below the 100 mark which indicates the long-term growth trend, but is still above the 95 contraction mark.

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