Responding to the Bank of England decision to raise the interest rate to 4%, David Bharier, Deputy Director at the British Chambers of Commerce, said:
“With inflation forecast to hit 5% next year, the Bank wanted to show it will act to stop price increases becoming entrenched.
“But the current rise in inflation is largely driven by energy costs from the conflict in Iran, not an overheating economy. Our data shows that now only 17 per cent of firms are increasing investment. If there are signs of de-escalation in the months following the midterm elections, and energy prices steady, a rate rise may prove premature.
“So far, there is little sign of the wage-price spiral the Bank is looking to guard against. Unemployment is higher than in 2022, the labour market is looser, and our research shows AI adoption accelerating rapidly – with some of the deepest users more likely to expect headcount reductions.
“A rate rise is an insurance policy against the spiral. But after a Budget which gave businesses little incentive to invest, and with borrowing costs already high, it is economic growth that will pay the premium.
More detail on the Bank’s decision can be found here.