West Midlands industrialists and business organisations reacted with unanimous dismay yesterday to the Bank of England's decision to raise its official interest rate by a quarter-point to 4.75 per cent, reversing the cut it made exactly a year ago.
While banks and building societies waited for each other to make the first move on mortgages, the stock market went sharply into reverse and the pound gained nearly a cent against the dollar to close at $1.8855. The 100-share Footsie index, which was showing a 40-point loss before the Bank's decision, finished 93.7 points down on the day at 5838.4.
Halifax, Britain's biggest mortgage lender, said an extra quarter per cent to raise its standard variable rate to 6.75 per cent would cost a home-buyer with a £100,000 repayment mortgage an extra £15.71 a month. But many home-buyers nowadays have fixed-rate deals and will not be affected until they run out.
In Frankfurt, an identical but more widely expected, move by the European Central Bank raised its rate for the eurozone to three per cent.
A statement by the ECB's president Jean-Claude Trichet was interpreted as a warning that a similar increase could follow in October.
An unusual statement from the Bank of England spelling out the reasons for its move gave no hint of its future stance. This may become clearer next Wednesday when the Bank publishes its quarterly "Inflation Report".
On the West Midlands, Peter Mathews, president of the West Midlands Trade Forum and managing director of Black Country Metals in Lye, spoke for many when he warned: "There is a strong risk that once the market think the Bank has rediscovered its taste for raising interest rates, sterling will stay high on the prospect of further increases.
"This must not be allowed to happen."
He added that the impact on inflation will be minimal compared to the potentially devastating effect the decision could have on exporters.
But Roger Bootle, economic adviser at Deloitte, took the view that yesterday's move is is "unlikely to mark the start of a series of rate hikes and probably represents a non-off move that might be reversed as early as next year".
James Cooper, policy adviser at Birmingham Chamber of Commerce1,0 expressed disappointment at the Bank's "kneejerk reaction" to rising inflation.
"Of course we share the (Bank's) concerns about the relatively large rise inflation the UK experienced in June and are aware of the risks that higher prices can bring to the economy," he said.
"But we want the (Bank's monetary policy committee) to examine the bigger picture. High, volatile energy price do cause inflation. But they also hit firms hard and most of them are unable to pass the increased costs on to consumers."
The Bank itself pointed to a wide range of indicators pointing to a quickening economy, as well as the pick-up in inflation to 2.5 per cent and the likelihood that it will remain above Chancellor Gordon Brown's two per cent target for some time.
"The margin of spare capacity in the economy appears small," the Bank said. "Some recovery in profit margins and pay growth is likely to mean that consumer price inflation will move only gradually back to the target.
"Against the background of firm growth, limited spare capacity, rapid growth of broad money and credit, and with inflation likely to remain above the target for some while, the committee judged that an increase of 0.25 percentage points in the official Bank rate was necessary to bring (consumer price) inflation back to the target in the medium term."