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22nd June 2023

Interest rates rise for thirteenth time in a row

Interest rates have risen for the 13th time in a row. The Bank of England has increased interest rates by 0.5% to 5%.

Reacting to the Bank of England’s latest announcement on interest rates, Paul Butterworth, CEO, at Chambers Wales South East, South West and Mid, said:

“Today’s announcement marks the 13th consecutive rise in interest rates. With the base rate now at 5%, Welsh businesses will continue to feel the combined impact of high interest rates, stubborn inflation and increased energy, materials and production costs.

“With inflation not falling as quickly as expected, it is understandable that the Bank of England must make difficult decisions to achieve economic stability and avoid the country entering a recession. However, these sustained interest rate increases will affect business confidence and stall investment plans as Welsh businesses continue to operate amid the uncertainty of a cost of doing business crisis, especially as over 96% of Welsh firms are SMEs.

“Reduced inflation and interest rates will be vital for Welsh business growth in the long-term and these actions need to be considered in a wider strategic conversation regarding investment in infrastructure, skills and trade for businesses in Wales to thrive.”

BCC Head of Research, David Bharier, said:

“With CPI inflation stubbornly higher than forecast at 8.7%, it was expected that the Bank would increase the interest rate further.

“But, while inflation is still the top concern for businesses, interest rate rises are now causing worry for a rapidly growing number of firms with soaring borrowing costs. Businesses will need clarity on the direction of further changes.

“There are several drivers of inflation which could be eased by a policy response. For instance, unprecedented tightness in the labour market is causing firms to bid up salaries, and trade barriers with the EU are driving up costs.

“The BCC has been urging the Government to act on these issues for over a year and is ready to work in partnership with it to ease labour shortages and reduce trade barriers.

“High inflation, high interest rates and slow growth will be a lethal combination for many. Fundamentally, solutions need to be found beyond the interest rate lever.”

Vicky Pryce, BCC Economic Advisory Council member, added:

“There should be absolutely no need to drive the economy into recession in a bid to deal with rising prices.

“There are already signs that the input cost pressures on firms are waning with PPI dropping by 1.5% since April. And although core inflation remains stubborn this does not prevent the overall CPI rate from falling.

“Against this background the Bank must give clear signals on interest rates and commit to cutting them quickly as inflation slows.

“There is a fine balancing act to be struck. Push too hard on interest rates and there is a real danger that more businesses will be driven to the wall, impacting the long-term outlook for economic growth and prosperity.”

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