The Bank of England has increased interest rates by 0.5 percentage points to 5% – the highest level since 2008 and 13th consecutive rate rise.
The bigger than predicted hike comes as inflation remains at historically high levels, with new figures for May remaining unchanged at 8.7%, after falling in April, and staying much higher than the Bank’s 2% target.
Inflation had been expected to decline to 8.4% year on year, leading to a further interest rate rise from the Bank of England to bring it under control.
The sharp increase will come as a blow to many businesses struggling with rising bills and the highest borrowing costs in 15 years.
Commenting on the Bank of England’s decision, East Midlands Chamber Chief Executive Scott Knowles said: “After 12 consecutive rate rises by the Bank of England as of last month, we expected to see a significant and sustained fall in inflation by now if this policy was to be the main driver in tackling the issue.
“So many businesses may question what impact a 13th hike in interest rates to a 15-year high will truly have, with inflation having flatlined at 8.7% in the latest figures.
“It’s becoming increasingly clear this is a blunt instrument that only focuses on reducing demand among a select group of consumers. Instead, we desperately need a dedicated strategy from Government to raise productivity, which would mean we have sufficient supply of products and services to meet this demand – bringing down prices and, thus, inflation.
“To drive up productivity, we need to support businesses to invest in their operations. Investment intentions among East Midlands firms for both plant and machinery, and training people, were each down by 3% quarter on quarter in the period from April to June this year, according to our Quarterly Economic Survey.
“Both these trends need to be reversed if we are to raise capacity and therefore productivity, which would mean high demand can be met with sufficient supply of products and services to then bring prices, and thus inflation, down.
“To this end, Government must help businesses by focusing on what we call the ‘four Is’ in our East Midlands Business Manifesto for Growth, A Centre of Trading Excellence – investment, innovation, infrastructure and international trade.
“Action in these areas should involve helping with the tight labour market by incentivising firms to upskill their people and making it easier to recruit skilled workers from overseas, more financial support for research and development in key sectors, and cutting red tape that continues to hinder exports.”
