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News: Consumer rate rise fear

Mon, 02 Jul 07

The Bank of England has been urged not to raise interest rates this week...

The Engineers Employment Federation (EEF) has backed the Bank’s four increases since last August as necessary to maintain the credibility of the 2% target. However, it now believes the following factors are tipping the balance against a further rise in the current cycle:

  • Earnings growth remains subdued.

  • Price increases are failing to materialise.

  • Mortgage approvals are falling.

  • Inflation is easing on all measures.

Commenting, EEF Chief Economist Steve Radley, said: “We have supported the Bank all the way through the current cycle of increases. However, we now believe that there are indications that the medicine applied so far is beginning to take effect and the case for another rise is not made.

“In particular, the previous rate tightening cycle was associated with a slowdown in consumer spending and the impact could be larger this time given higher levels of consumer debt and weaker earnings growth.”

Increase an ‘inevitability’?

David Kern, economic adviser at the British Chambers of Commerce, said: "British businesses are resigned to an increase to 5.75% next Thursday.

"We would be relieved if the MPC decided to wait, but this appears unlikely. More seriously, there are growing indications that interest rates could be raised further, to at least 6%, before the end of the year.

"If this happens, the implications for business could be devastating. We appreciate the MPC's legitimate concerns over inflation, but they must appreciate the growing risk of going over the top, and causing unnecessary and lasting damage to the economy."

Source: EEF

 

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