MPC must act to counter worsening threats of recession

Commenting on the choices facing the MPC ahead of its August meeting next Thursday, David Kern, Economic Adviser to the British Chambers of Commerce, said:

“UK house prices on the Nationwide index fell sharply in July. The 8.1% annual fall was the biggest since the index started in 1991. Further evidence of the painful squeeze on UK consumers has been provided by a new survey showing consumer confidence plummeting to a level worse than in the early-1990s recession. More ominously, falling house prices will add to banks' bad debts and will weaken their ability to provide vital finance to hard-pressed businesses. Risks of UK recession are clearly worsening, and the economy badly needs a small interest rate cut as early as possible.

“However, virtually all analysts expect the MPC to keep rates on hold at 5% on Thursday. The first UK rate cut is only predicted for early next year, but we fear this may well be too late. Indeed 2 or 3 rate cuts are widely expected in 2009, because the UK economy could be in a very bad state next year.

"With UK inflation set to increase soon above 4%, we understand the MPC is reluctant to cut interest rates on Thursday. But, any thought of rate increases must be forcefully quashed. The MPC must start cutting interest rates without delay in October or November, once we reach the peak in UK inflation. Without early action, the threats of recession would worsen.”

Ends

Media Contacts:

Fiona Cunningham
Tel: 020 7654 5812
Email: f.cunningham@britishchambers.org.uk

OR

Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk

Notes to Editors:

The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.