Business leaders in the West Midlands have broadly welcomed the decision to hold interest rates at 0.5 per cent – but remain concerned about the state of the local economy.
Monetary Policy Committee rate-setters held back from further help to the economy yesterday after monetary policy was left unchanged, leaving rates at a historic low.
The Bank of England also chose not to alter its quantitative easing (QE) scheme to boost the money supply, leaving the current total at £200 billion.
Peter Mathews, president of Black Country Chamber, 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.
“Many businesses are expecting a difficult start to 2010 and will continue to struggle to trade out of the recession; therefore it is imperative that we maintain a relatively low interest economy to support growth and a sustainable recovery.
“The Monetary Policy Committee must take more of a long term view when making interest rate decisions. It is crucial that any rate increases in the future are slow and gradual and do not change dramatically before the end of next year”.
The Monetary Policy Committee (MPC) decision was widely predicted by economists who believe last month’s £25 billion increase to QE showed the Bank was moving down a gear on the programme.
It comes amid optimism that the economy will pull out of recession before the end of this year, having suffered six successive quarters of negative output.
Minutes of November’s meeting showed policymakers were divided three ways over their decision on how to boost the economy.
Paul Bassi, president of Birmingham and Solihull Chamber of Commerce and Industry, said: “Lack of cash flow is still hindering business development. But the economy needs interest rates at this level until such time as we conclusively see stability and growth.
“To boost bank lending, a viable option would have been to cut interest rates further. Money supply remains a concern and it is imperative that the right conditions for expansion are created in the first quarter of 2010.
“We eagerly await the final quarter GDP figures which we expect will show that we have exited recession. However, any sort of recovery will be extremely fragile.”
Louise Bennett, chief executive of the Coventry and Warwickshire Chamber of Commerce, said the fact that interest rates had remained at a record low for nine months reflected the UK’s economic state throughout 2009.
She said: “This comes as no surprise and when you consider the level rates have been at for the vast majority of the year coupled with quantitative easing, you can see just how precarious the Bank of England believes are economic situation has been over the past 12 months.
“It will be looked upon as an historic period for economy and time will tell whether the Bank’s policy has contributed to a short, medium and long-term recovery.
“As for interest rates, we have always welcomed this very low rate and it marks a stark difference to recessions of the past.
“That said, many businesses we speak to are still unable to benefit fully from them because there is still difficulty in gaining credit. That is something that still needs to be addressed going into the New Year.”
