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20 Sep 2023

Falling inflation welcomed but time to pause interest rates hikes, says East Midlands Chamber

Commenting on the latest figures from the Office for National Statistics (ONS) showing consumer prices index (CPI) inflation was 6.7% in the year to August 2023, East Midlands Chamber chief executive Scott Knowles said: “While inflation remains stubbornly high, the fact it is very gradually easing off will provide slight relief for businesses, which have been fighting against huge cost pressures related to energy, raw materials, fuel and people for almost two years now.

“This continues to affect their ability to invest, with our Quarterly Economic Survey consistently illustrating a hesitancy among East Midlands businesses when it comes to investment intentions across plant, equipment and people.

“While bringing inflation down, and keeping it low, will provide the headroom to kickstart new investment – which is integral to driving forward productivity in order to bring down costs and grow the economy – it’s imperative the Bank of England also pauses for thought on its monetary policy.

“Because while our latest survey for the current quarter show inflation remains the top concern for businesses, interest rates are a close second and have rapidly risen up the agenda throughout the year.

“High interest rates – a blunt instrument in tackling the economic issues that have led to sky-high inflation – are another big barrier to investment as the cost of borrowing goes up, with smaller firms and those in consumer-facing sectors disproportionately affected.

“Businesses need reassurance that not only have interest rates have reached their peak, but Government has a plan to develop an economic policy that will support them to invest.

“To this end, we have urged policymakers to focus on what we call the ‘four Is’ – investment, innovation, infrastructure and international trade – in our regional economic blueprint, titled A Centre of Trading Excellence: A Business Manifesto for Growth in the East Midlands and Beyond.

“Action in these areas should involve helping with the tight labour market by incentivising firms to upskill their people and making it easier to recruit skilled workers from overseas, more financial support for research and development in key sectors, and cutting red tape that continues to hinder exports.”