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21 Sep 2023

Bank of England is right to finally pause rates hikes as demand cools, says East Midlands Chamber

Commenting on the Bank of England’s decision today (21 September) to hold the base rate at 5.25%, East Midlands Chamber chief executive Scott Knowles said: “After 14 consecutive hikes in the base rate, the Bank of England’s decision to pause for the first time since November 2021 comes as a huge relief for businesses, which have been increasingly concerned about interest rates.

“Unlike some forecasts, we weren’t surprised by the latest ONS figures showing a fall in headline inflation given the feedback we have received from East Midlands firms.

“Our Quarterly Economic Survey has illustrated how the squeeze on prices from energy, fuel, raw materials and people has declined in recent months, with our latest data showing the proportion of businesses intending to increase their prices has roughly halved over the past year.

“If the Bank’s aim has been to dampen demand in the economy, this has now been achieved as domestic and international sales have decreased considerably in recent months in our region.

“The flip side of raising the base rate is it makes borrowing more expensive for companies and thus has a detrimental impact on investment – a crucial ingredient in raising productivity in order to bring prices down and grow the economy.

“Investment intentions in the East Midlands have been at a very low base for too long now and there is little to suggest this picture moving any time soon, particularly while interest rates remain at the highest level in more than 15 years.

“Therefore, given the impact of these measures takes some time to be felt in the economy, a policy of relentless monetary tightening is no longer necessary and we hope the Bank will now take some time to pause, allowing the economy to adjust on its own accord over the coming months.

“From Government, we need a dedicated policy that focuses on what we call the ‘four Is’ in our East Midlands Business Manifesto for Growth, A Centre of Trading Excellence – investment, innovation, infrastructure and international trade.

“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 investment in research and development, and cutting red tape that continues to hinder exports.”