Business leaders are calling on the Bank of England to keep interest rates at historic lows to help exporters.
Putting up interest rates will not solve the problems of inflation and will hurt firms which have seen export sales buoyed by low interest rates, according to Birmingham Chamber of Commerce Group.
Ross Gurdin, policy advisor at the chamber, said the Monetary Policy’s Committee’s should keep rates at 0.5 per cent when they meet on Thursday.
The chamber believes the soaring price of oil and higher than expected rises in heating costs as well as the higher costs of cotton, leather and other basic commodities due to weather problems is the cause of a rise in inflation.
Mr Gurdin said: “The Bank of England expects inflation to come down to around two per cent sometime next year anyway, as temporary inflationary pressures begin to abate, so to increase interest rates now could damage the recovery and offer limited impact on inflation.
“Businesses are already coping with a level of food price volatility which we haven’t seen since the oil crisis of 40 years ago due to droughts in Russia, China and Brazil and the flooding in Pakistan and Australia.
“Many experts believe commodity prices such as oil and key foods such as wheat and sugar could continue rising which could push inflation up to five per cent in the short term. Some oil analysts believe the price of a barrel of oil could exceed the record high of $147 set in 2008 if the turmoil in the Middle East continues and demand from emerging Asian economies keep growing.
“To raise interest rates now could damage the resurgence in exports, particularly for manufacturers. The pound has devalued by around 25 per cent since the recession which means that British goods are cheaper in foreign markets so demand for luxury and high quality goods have continued to grow.”
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, who believes the low rates are crucial to getting the economic recovery back on track.
She said: “With each set of economic figures that are released at the moment, we see fresh uncertainty.
“There are reasons to be optimistic and the business friendly Budget was certainly received positively by many companies we have spoken to on our patch.
“But we still have the final quarter of 2010 GDP contraction in our minds and rising unemployment figures to contend with.
“That’s why we believe that interest rates should remain as low as possible for as long as possible.
“We are by no means back on course with a sustainable economic recovery yet and, therefore, we need very low interest rates until we are on a more solid footing.”