Small businesses are resigned to the fact that interest rates are likely to rise next month, it has been claimed.
Following surprise official figures released earlier this week showing that CPI inflation reached 3.1% in March, up from 2.8% in February and above the government's 2% target, the British Chambers of Commerce (BCC) said businesses accept that an increase in the cost of borrowing to 5.50% in May is necessary. But the BCC warned that bigger hikes would be damaging.
David Kern, BCC economic adviser, said: "After [the] shock inflation figures British business accepts that a bank rate increase to 5.50% in May is necessary in order restore credibility in the anti-inflation strategy. But calls for a 50 basis points increase to 5.75% are misguided and potentially dangerous.
"Higher interest rates are already causing considerable pain. The squeeze on consumer disposable incomes is intensifying, and the surge in sterling is squeezing exporters' margins, in spite of the partial offsetting benefits resulting reduced costs of imported raw materials.
"The Monetary Policy Committee must curb the upsurge in inflation, but must avoid monetary overkill that may cause long-term damage to business."
Date:19 April 2007
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