Business and industry leaders in the West Midlands have urged the Bank of England to cut interest rates to one per cent to give a shot in the arm to industry.
Birmingham Chamber of Commerce and Industry said a cut from two per cent would boost business and consumer confidence.
Katie Teasdale, senior policy adviser at the Chamber, said: “One of the worrying points underlined in our final quarterly economic survey for 2008 was confidence in all sectors has taken a huge knock. It is crucial the UK economy is given a boost, and while the weak pound against the euro is helping exporters, there is a need to reactivate demand in the UK market.”
She added without business activity the economy would “come to a halt”. Meanwhile, the Coventry and Warwickshire Chamber of Commerce echoed the call, arguing a reduction of at least half a per cent was required.
Louise Bennett, chief executive of the Coventry Chamber, said: “A half per cent cut is a necessity. A full percentage point would be ideal. We realise it would be an unprecedented step, but it has been made necessary by the fact rates were left at five per cent for far too long and we are playing catch-up. The UK economy is in recession. It is now very important we ensure it is as short and shallow as we can. Low interest rates will be a good basis but we have to see lending to businesses return to somewhere near ‘normal’ levels to get the economy going again. The first few months of 2009 are going to be key in determining how the year pans out.”
Charlotte Ritchie, director of policy and representation at Black Country Chamber, warned the Bank of England could force itself into a corner with another cut.
She said: “A cut this week is the last thing the Bank is going to be able to do. They won’t be able to make another substantial cut after this and the argument will be they should use every option they can sooner rather than later. However, the low interest rates open up the possibility of a prolonged spell of deflation, and the falling value of sterling will be playing on their minds, despite the fact it is making things easier for exporters.
“The trouble is consumers are still not spending, despite the reduction in the cost of borrowing, because of rising unemployment. Unless we can curb rising unemployment, economic policy tools such as interest rates will not provide the fiscal stimulus the economy needs.”
Richard Boot, IoD West Midlands regional chairman, called for another substantial reduction in rates. He said: “We believe rates should be cut by one percentage point to one per cent, and also think that this is what the MPC will actually do. A reduction below one per cent is held back by uncertainty over spending in the high street over Christmas.”
Steve Radley, chief economist at EEF, the manufacturers’ organisation said: “This year was already going to be a serious challenge for manufacturers but all the indications are that the downturn is gathering pace at home and abroad. Every available opportunity has to be taken to try to prevent the recession deepening and that has to include another decisive cut in interest rates this week.”