Economists hoping for a reduction next month
No surprises as bank keeps UK base rate at 5%
Published:
Scottish business leaders and economists got what they had expected yesterday, when the Bank of England said interest rates would stay at 5% for at least another month.
Homeowners hoping for a back-to-back cut in borrowing costs were left frustrated by the outcome.
City economists still expect a cut to be made next month, saying policymakers avoided the move yesterday because of fears soaring oil and food prices would force inflation above 3%.
The central bank faces a delicate balancing act between controlling inflation and maintaining economic growth.
Welcoming yesterday’s outcome, Scottish Council for Development and Industry chief economist Iain Duff said the bank had to take into account the impact of interest rates on the strength of the pound.
“While the weakness of sterling is a help to exporters, it stokes inflation by pushing up the cost of imported goods such as food. There is also growing evidence from our members that the depreciation of the pound is discouraging migrant workers, with some companies reporting that they are losing staff to competitors in the eurozone because their salaries in pounds are no longer worth as much when changed into staff’s own currency.”
Scottish Chambers of Commerce chief executive Liz Cameron said: “This decision by the MPC (the bank’s monetary policy committee) was not unexpected, but we hope that interest rates will continue on their downward path again soon.”
She said, however, that the rising cost of fuel was rapidly becoming the main economic concern for Scottish businesses, adding: “One of our member businesses has reported a £100,000 per month price rise for their gas consumption, adding further pressures on margins at an already economically challenging time.”
Royal Bank of Scotland economist Stuart Porteous said: “Policymakers will want to wait a little longer to assess whether the bank’s new lending facility is easing the liquidity squeeze.
“Inflation is also still above the 2% target.
“Nevertheless, business activity is clearly slowing and the headwinds facing households from higher food and energy prices as well as a cooling housing market are intensifying. We expect rates to be lowered in the months ahead.”
