Chamber: Interest rates rise will deter business investment

The Chief Executive of the East Midlands Chamber has responded to the Bank of England’s confirmation that it will raise the base interest rate from 0.1% to 0.25%. 

Scott Knowles said: “Given how much inflation has spiralled in recent months, many businesses will have been expecting interest rates to be raised at some point in the near future, but it comes as a big surprise for it to happen right now given the mounting uncertainty over the economic impact of the Omicron variant.

“While today’s rate increase may have little effect on most firms, many will view this as the first step in a longer policy movement – not as a partial reversal of last year’s cut. 

“The big concern is that it may deter business investment at the exact time it’s needed more than ever. Our latest Quarterly Economic Survey for Q4 2021 shows there was a 2% drop in businesses intending to invest in plant and machinery when compared to the previous quarter, while the proportion of those expecting to invest in training staff dropped by 7% in comparison. 

“If businesses don’t feel like the policy environment encourages investment, it could significantly hold back our economic recovery by putting a drag on any attempts to improve productivity in order to grow and create new jobs.

“While policymakers are facing a tricky trade-off between surging inflation and a stalling recovery, with the current inflationary spike mostly driven by global factors, higher interest rates will do little to curb further increases in inflation. 

“Instead, it is vital more than ever that the Government’s Supply Chain Advisory Group and Industry Taskforce start to provide some practical solutions to the supply and labour shortages that are continuing to stoke inflationary pressures. 

“Without real improvement to the situation, supply chains currently facing rising prices are likely to continue to be an issue even with monetary policy responses.”