Chamber Of Commerce Calls For Rate Cut
In its latest economic forecast the British Chamber of Commerce has called for interest rates to be cut to help stave off recession. It reckons that recession is more of a threat than inflation. Interest rates, it says, should be cut when inflation has peaked - expected to be in the autumn.
The British Chamber of Commerce (BCC) has called for interest rates to come down to help stave off recession in its latest economic forecast.
A recession – at least two consecutive quarters of negative output – is looming in the UK, and the BCC believes the recession threat is more serious than the threat of inflation to the wider economy. Thus, it says that interest rates should be cut as soon as inflation has reached its peak – expected in a couple of months. It would like the base rate to be cut to 4.75% by the end of the year.
Although inflation is now at 4.4%, some economists expect it to come down sharply in 2009 once the impact of rising oil prices this year is diluted by its fall in recent weeks.
The BCC claimed that the longer the Monetary Policy Committee (MPC) of the Bank of England waited before cutting the rate, the higher the risk to the economy. Unemployment is already on the increase. Consumers have had to tighten their belts in the face of rising fuel, energy and food prices, as well as mortgage costs which have been on the rise since the credit crunch took hold last August.
However, mortgage rates have started to show signs of having peaked. If the base rate were to come down in the autumn that would provide another boost for the mortgage market, and might spring the housing market back into life.
A cut in the base rate might also reinvigorate consumer spending in the run up to Christmas, with positive effects on retailers, suppliers and manufacturers. From that, the economy would show definite signs of recovery and rising unemployment might be halted.
However, it is likely that the MPC will need to be very sure that inflation has peaked before it makes any cut in interest rates.
