Cumbria Chamber of Commerce says that today’s increase in interest rates will weaken business confidence and investment.
The Bank’s Monetary Policy Committee voted unanimously to increase the base rate from 0.5% to 0.75%, the first time it has been above 0.5% since the financial crisis in 2009.
Increasing the base rate pushes up the cost of borrowing for businesses. It also makes mortgages and personal loans more expensive, leaving people less to spend on other things.
Rob Johnston, Chief Executive of Cumbria Chamber of Commerce, said: “We believe the increase is premature.
“It isn’t needed to keep a lid on inflation, because inflation is falling already, and it will make it more expensive for businesses to borrow and invest.
“It’s another cost for businesses to bear on top of the increases in business rates, auto-enrolment pension contributions and the National Living Wage, and it will weaken consumer demand in the wider economy.
“That said, it is only a quarter-point rise when some commentators had been forecasting a half-point increase.”
He added: “We urged caution on interest rates when Sir Jon Cunliffe, one of the Bank’s deputy governors, addressed a Chamber lunch in Kendal last month.
“He appeared receptive to our arguments but my guess is that the Monetary Policy Committee felt that they had to increase the base rate to give them headroom to cut it again to stimulate the economy if there is a difficult Brexit next March.”
Sir Jon told the Chamber lunch that he expects the base rate to rise to 1.25% over the next two years, in line with the Bank’s May forecast. This should allow the Bank to hit the Government’s inflation target of 2%.