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Interest rate cut does little for long-term confidence, says Chamber chief
THE COMMITTEE that decided the UK’s interest rate levels must look away from further rate cuts if the UK economy is to enjoy long-term growth.
That is the message from the region’s voice of business following last week’s decision by the Bank of England’s Monetary Policy Committee to reduce interest rates from 0.5% to 0.25%.
Chambers of Commerce across the UK say the move is a clear signal to the markets, business and consumer over the increasing uncertainty as a result of the UK voting to leave the EU.
The decision, the first cut in interest rates since 2009, further demonstrates the uncertainty over the near term economic outlook as the UK begins its negotiations with its EU counterparts.
Paul Griffiths, chief executive of Milton Keynes and Northamptonshire Chambers, said the rate cut will deliver a short-term boost to business and consumer confidence.
But he added: “However, it will do little to boost confidence in the long term as businesses seek certainty and clarity both in terms of monetary policy by the BoE.
“Businesses want low, stable interest rates for the foreseeable future, which will enable them to make their own growth and expansion plans with confidence.
The Bank of England decision followed a critical mass of data that has indicated that the UK economy is slowing down. Construction and manufacturing PMI data released in the past week have both reported a figure of below 50, indicating a contraction in activity.
Mr Griffiths said: “These two important readings are some of the first major data sets release that reflect the post-EU referendum landscape. While GDP figures and job growth have remained buoyant, these are both backward looking, with the former one subject to revisions.”
Business will welcome the term-funding scheme, which will help to ensure that local businesses benefit from cheaper loans so they can invest and grow.
Mr Griffiths said: “With further cuts in interests rates indicated by the BoE these are unlikely to stimulate the real economy significantly and bring the threat of negative interest rates on businesses' deposits, which will be of significant concern to some.
“Instead of further cuts to rates in the future, the MPC should give careful consideration to developing the other measures announced in order to drive longer-term UK business growth.
“This could be through further purchases of business bonds, and expanding the scope of their intervention to include investments in the UK’s ageing infrastructure in key areas such as transport and communications, all of which are critical to local economic growth and job creation.”
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