Bank of England stays firm on interest rates

Posted on 11 Jul 2014 by Thomas Colson

The Bank of England's Monetary Policy Committee (MPC) voted to maintain interest rates at 0.5% on Thursday.

The news comes amid fears that the strong sterling is hurting British manufacturers.

Earlier in June there had been calls from manufacturers to raise interest rates after a number of reports were released indicating renewed optimism and increased output in the sector.

The BDO’s Output Index and Optimism Index both measured increases in June in the monthly Business Trends report.

Commenting on the BDO report, World First’s Jeremy Cook said that it would “add fuel to the fire to those who believe that the UK economy is in a strong enough position to start normalising monetary policy via hikes in interest rates.”

More recent figures have proven less positive, however, with government statistics showing a surprise slump in manufacturing in June and the trade deficit widening to £9.2bn in May.

Commenting on the MPC’s decision, David Kern, chief economist at the British Chambers of Commerce said keeping interest rates below had been the correct decision.

However, Kern warned that “inconsistent messages from the MPC are hampering the efforts of businesses to sustain the recovery.”

Other figures in the business also voiced fears that speculation from the Bank of England is adversely affecting business confidence.

Richard Rose, partner and head of BDO, said: “We still don’t know when interest rates will rise and businesses cannot plan for growth on the basis of vague and conflicting statements – policy makers can do more to provide certainty for businesses.”

Further challenges to a sustained economic recovery were underlined by Vince Cable in a speech to the Social Market Foundation on Thursday.

The business secretary warned that a recovery driven by consumer spending was not a long-term solution, and that UK productivity remained low, particularly in manufacturing.

“Boosting productivity, notably in manufacturing, can reduce unit labour costs and therefore help to keep prices lower in face of a rising exchange rate,” he said.

“Indeed, there are signs that manufacturing is doing this, with output per hour worked up by 1.4 and 1.5 per cent in the last two quarters respectively.”

According to a Telegraph Finance survey, the current forecast is for a rise of 0.25% in January 2015.