Bank rate rise draws mixed response

06 August 2004
The Bank of England's Monetary Policy Committee's decision to raise interest rates was met with a mixed reaction from the business world.

Yesterday the MPC increased the rate of borrowing to 4.75 per cent, where it stood in September 2001. This was the third increase in four months, and the fifth since November.

Reacting to the decision, David Frost, director general of the British Chambers of Commerce, said: "We call on the MPC to resist the clamour for a rapid tightening of monetary policy."

He insisted: "Interest rate overkill would have damaging consequences for the rest of the economy, especially the manufacturing sector. We urge the Bank to take the concerns of UK business fully into account in its future deliberations."

The Council of Mortgage Lenders' director general Michael Coogan commented: "The Monetary Policy Committee members have recently made a point of emphasising that it is not in the business of 'clobbering consumers'."

"We do not expect that the housing market will still be regarded as a significant inflationary pressure looking ahead into 2005. Nor do we expect that there will be a significant worsening in arrears and possessions figures in 2005 with the benign economic backdrop."

The general secretary of the T&G, Tony Woodley was less happy with the news: "In a week where manufacturing has shown its strongest performance for nearly a decade, today's decision to raise interest rates is untimely and unwelcome. Industry's recovery risks being stalled before continued growth can be sustained."

The director of the Scottish Chambers of Commerce, Bob Leitch, was similarly unimpressed by the decision to raise rates: "No news would have been good news. There is just too much uncertainty in the business community at the moment for it to happily absorb a rate rise. So while not crippling, this is an unhappy addition to the business burden."

Rates are tipped to rise again before the end of the year, with many observers seeing the "neutral" interest rate, where the rates will stop rising, as between 5.5 and six per cent.
DeHavilland Information Services plc