The Bank of England’s decision to keep interest rates at 0.5 per cent for the 12th consecutive month has been given welcomed by business leaders in the West Midlands.
The Bank kept its quantitative easing programme to boost the money supply unchanged at £200 billion and kept rates at the historic low.
“Low rates will help business growth, which is crucial if we are to exit the recession convincingly,” said head of policy at Birmingham Chamber of Commerce and Industry Katie Teasdale. “Growth of 0.3 per cent in quarter 4 appears to have been built upon in the first quarter with improved export figures.”
However, she warned that low interest rates alone were not enough, especially as the threat of creeping inflation may force rises in the medium term.
She added: “The MPC’s decision not to further extend Quantitative Easing is reasonable because we need to let the extra monies flush through the system. However, there is still an issue over bank lending which needs to be addressed.
“The Government must play its part and the approaching election is no excuse for paralysis. We need to see a slew of business-friendly measures, the most important of which is the cancellation of one per cent rise in National Insurance contributions scheduled for April next year.”
Black Country Chamber of Commerce president Peter Mathews said: “The Bank of England is correct to keep interest rates on hold. This decision will enable the UK to maintain price stability and therefore economic stability.
“We are clearly not out of the woods yet, and the Monetary Policy Committee must take a long term view when making interest rate decisions and it is crucial that any rate increases in the future are slow and gradual and do not change dramatically in the near future.
“Many businesses have experienced a difficult start to 2010, so it is imperative that we maintain a relatively low interest economy to support growth and a sustainable recovery; any future Government decisions should reflect this.
“I expect that the 2010 Budget will reveal some tough decisions for businesses, so it is imperative that interest rate stability is maintained in the near future. During the interim it is obvious that the Bank of England will hold a greater than usual responsibility for our economy. ”
The Monetary Policy Committee’s (MPC) “wait and see” stance comes after a month of mixed signals as the UK crawls out of recession.
Figures last week showed the economy growing at a faster pace than first thought in the last quarter of 2009, but the 0.3% advance sparked little cheer as the recession was deeper than first thought - a record 6.2%.
Recent surveys showed manufacturing and services activity picking up pace and consumer confidence at its highest level for two years, but VAT hikes and snow have hit retailers.
Louise Bennett, the chief executive of the Coventry and Warwickshire Chamber of Commerce, said: “The longer rates stay at this level, the greater the pressure there will be for the Bank to start moving them back up – especially when inflation has been rising.
“But we have been content to hear that the Bank recognise that inflation is going up because of exceptional circumstances and have not pressed the panic button.
“Low interest rates are a crucial factor in helping the economy to recover and to grow again so the Bank should continue with this present course.
“As we have said many times before, the Government must play its part by ensuring solid businesses that want to grow can access finance at a lower rate, which is more in line with the base rate.”