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3rd August 2023

Chambers react as interest rates rise again

The Bank of England has raised interest rates to 5.25%, the 14th consecutive rise in interest rates.

Paul Butterworth, CEO at Chambers Wales South East, South West and Mid, said: 

“Today the Bank of England has decided to raise interest rates again to control inflation that has remained stubbornly high. The Bank of England must make difficult decisions to avoid out of control inflation and keep the economy stable. However, we are yet to see any real fiscal benefits to businesses or any reduction in housing or food inflation which continues to drive the cost-of-living crisis which in turns sustains the cost-of-doing-business crisis.  

“Governments need to do more to further efforts in bringing prices down for businesses in the short and medium term. It is important for businesses to be able to borrow effectively and higher interest rates make this more difficult. A balance must be struck to ensure businesses get fair opportunities to grow. 

“More must be done to ease pressure on Welsh businesses and hand them economic stability. Wage pressure and the continued skills gap alongside high inflation represents the largest barrier to growth. Our Quarterly Economic Survey for Q2 2023 indicated that 65% of businesses found inflation to be more of a concern than it was three months ago. This indicates that inflation still has a long way to go to return to normal. 

“We encourage policymakers to consider ordinary people and businesses, and those who experience economic difficulties much more acutely, when looking at economic policy like increased interest rates and the impact of inflation. We are committed to lobbying for better and fairer economic conditions for Welsh businesses.” 

Vicky Pryce, BCC Economic Advisory Council member, said

Businesses across the UK will be fervently hoping that today’s rise in interest rates is the last they will see.

“While many firms will have already factored this increase into their plans, it is clear from the recent rise in insolvencies that the economic environment is becoming stacked against smaller firms. They are the ones with less cash reserves in the bank and greater exposure to finance.

Yet data from the Office for National Statistics clearly shows that input cost pressures for firms are finally falling. And recent BCC research backs this up with 45% of companies now expecting to increase prices, a 15-percentage point fall compared to six months ago.

“We are also likely to see a further substantial fall in inflation in July as last year’s energy price rises drop out of the data.

While inflation remains the top concern for businesses overall, interest rates have emerged as the second top concern, with 41% citing this as more of a worry than three months ago in the BCC’s latest survey.

And there is now a real danger that the economy could be pushed into recession as it takes 18 months for changes in interest rate rises to filter throughWith all the cumulative pressure of past rises yet to come, business will be watching closely for any further indications on the Bank’s plans.

At the same time, it is encouraging that the Government has recently expanded the list of shortage occupations to recruit more workers from abroad. Hopefully it will now be considering what more can be done to ease staff pressures.

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