Britain’s major business bodies yesterday said premature moves to raise interest rates could blow the UK’s economic recovery off course.
The CBI and British Chambers of Commerce both urged caution on the Bank of England after governor Mark Carney suggested to City leaders that a first hike in rates from a historic low of 0.5% could come sooner than expected.
The remarks that “gradual and limited” increases were in the pipeline speculation yesterday put the likely timing of a hike as November caught analysts off-guard as it had been expected that it would be into next year before the first rate rises were applied.
A move on rates would give a boost to hard-pressed savers, but CBI director-general John Cridland said a hike came with the risk of damaging the wider upturn.
“With the economic recovery firming up nicely, any change in monetary policy should ensure this isn’t blown off course,” Mr Cridland said.
“The Bank has clearly stated in its forward guidance that when rates do begin to rise they will do so gradually and to a level materially below their pre-crisis average.
“With markets up until now expecting a rise in the spring of next year, businesses will be alert to any further communications from the Bank.”
Dr Adam Marshall, executive director of policy and external affairs with British Chambers of Commerce, said companies wanted to be sure of the economic ground they were on as they made plans for the future and signed off on investment decisions.
“We would urge the Monetary Policy Committee not to jump the gun,” Dr Marshall said.
“Earlier-than-expected rate rises could mean that current levels of growth are as good as it gets for the UK economy.
“The case for acting more swiftly has not yet been made.
“If the housing market is the principal concern, there are other tools at the Bank of England’s disposal to cool the market.
“If we are to see continued business investment growth, following the abysmal levels seen over far too many years, companies need to be confident that they will be working in a low-interest-rate environment, facing only gradual rather than sudden change.”
There was speculation yesterday that minutes of the last meeting of the Bank of England’s rate-setting committee, which will be made public next week, will show that one or two members broke ranks and voted for a hike.
Interest rates were last increased in the summer of 2007 and have been at 0.5% since March 2009 as policymakers attempted to nurse the economy back to health.
Investec economist Victoria Clarke said: “Carney has come out and surprised markets and effectively put households, markets and businesses on notice that an interest rate hike is imminent.
“Certainly that looks likely by the end of the year now.”