Yorkshire Times
A Voice of the Free Press
1:15 PM 4th August 2022

Decisive Action By The Bank Of England

The Monetary Policy Committee of the Bank of England has raised interest rates by an historic 0.5% to 1.75%

Image by PeterRoe from Pixabay
Image by PeterRoe from Pixabay
Kitty Ussher, Chief Economist of the Institute of Directors, commented:

“We welcome this decisive action by the Bank of England. Concern about inflation is causing firms to hesitate before committing to essential long-term investment. With energy prices continuing to rise, strong intervention is needed to increase confidence that we will soon be through the worst, so that boardroom decision-makers can plan ahead with greater certainty.

“At the moment two-thirds of our members believe the inflation rate will continue to rise until at least the Spring of next year, with a large number thinking the peak will come even later. We will be watching carefully to see if today’s rate rise brings business expectations more into line with the Bank of England’s central forecast that inflation will peak before the end of this year.”

Heightened risk of zombie companies will slow recovery

Atul Bhakta, CEO of One World Express, a leading cross border e-Commerce solutions provider, said: "While we fully expected further rises to interest rates on the path to curbing inflation, today represents a significant leap – and one which must be tempered carefully to avoid feeding a recession.

"Many businesses are already struggling to find the right balance between seeking growth and avoiding risk. Some are doing little more than ticking over in hopes of better market conditions in the near future; One World Express’ recent research highlighted that 28% of businesses fear they will not survive the year. This is a testament to the uncertainty businesses are grappling with, and allowing the cost of debt and borrowing to spiral will exacerbate the issue.

"The ramifications of businesses collapsing would, of course, be very serious. It would mean job losses and further damage to the UK economy. So, greater support is required – I would like to see the Government consider a range of support measures, from improving SME access to finance and potentially even payment holidays on debt, through to greater focus on fuelling cross-border trade. Ultimately, businesses need access to as many potential customers as possible, so cutting down red tape for those who want to sell beyond Britain's borders would help boost exports and offer new opportunities to the private sector."

Workplaces must see the bigger picture:

Chieu Cao, CEO of Mintago, said: “Today’s BoE decision will do little to help the Britons who are struggling in the midst of the cost-of-living crisis. In the current climate of soaring inflation, driven largely by skyrocketing food and energy costs, saving money has also become increasingly difficult. Not all savings accounts will reflect the changes to the base rate, and it still will not come close to the rate of inflation. Meanwhile, those with debts, particularly mortgages, will likely see their repayments increase.

“We're living through very challenging economic conditions right now. As such, it’s more important than ever that people feel able to voice their concerns about their situation and empowered to take control of their finances; and this needs to happen in the workplace, where not enough is being done.  

“By providing their staff with better financial support – whether that is advice or platforms that help them manage their finances – employers can do a lot to alleviate the stress many people are facing. Reviewing salaries is one thing, but bosses need to see the bigger picture. Can they help their employee get a clearer idea of their overall financial situation and make more informed long-term decisions about their finances? This would make a huge difference and I would urge organisations of all sizes and sectors to consider how they are helping with their staff's financial wellbeing at this critical time.”

David Bharier, Head of Research at the British Chambers of Commerce (BCC), said:

“This rise is the clearest signal yet of the Bank of England's intention to get inflation under control. Spiralling prices are cited by businesses as by far and away the top concern right now.

“However, given the extremely precarious state of the economy, this decision is not without risk for businesses and consumers that are exposed to banking or overdraft facilities.

“There are many causes of the current inflation crisis - global supply chain problems, trade barriers, soaring energy costs, increased taxes, and labour market shortages. Interest rate rises alone will do little to address these.

“Worryingly, our research indicates strongly that most small businesses are not investing for growth, and that longer-term confidence is beginning to wane.”

The Bank of England’s Governor correctly highlighted in his recent Mansion House speech how the incredibly tight labour market is putting upward pressure on inflation.

The BCC has written to the Government outlining a three-point plan on how it can work with businesses to solve these recruitment difficulties.

The steps are:

Firms must be encouraged to find new ways of unlocking pools of talent – by investing more in training their workforce, adopting more flexible working practises and expanding use of apprenticeships; 

Government must help employers invest in training by reducing the upfront costs on business and providing training related tax breaks; and 

The Shortage Occupation List (SOL) must be reformed to allow sectors facing urgent demand for skills to get what they need.  

Alpesh Paleja, CBI Lead Economist, said:

“The Bank of England’s latest rate rise is the biggest in 27 years, and follows in the footsteps of strong tightening by other central banks. It underscores the seriousness of our inflation problem, but also demonstrates the MPC’s willingness to act in response.

“Despite early signs of some pipeline price pressures fading, it’s clear that we’re in for a hard winter. With another hefty rise in Ofgem’s energy price cap looming, support for the most vulnerable households and businesses should be kept under review.

“Monetary policy is the first line of defence against inflation, yet building resilience to future price shocks requires a concrete plan for economic growth. So the new Prime Minister must prioritise boosting productivity through greater business investment via incentives and business rate reforms. Meanwhile, investing in energy efficiency can support people struggling with the cost-of-living crisis”.