A Bank of England rate hike would be 'extraordinary' step for Britain's Brexit economy

LONDON — The Bank of England hiking interest rates next month would be an “extraordinary” step and should be avoided given the current economic climate in the UK, an influential business lobby groups said.

The British Chambers of Commerce said in its Quarterly Economic Survey on Friday that economic growth is simply not strong enough right now to necessitate a Bank of England rate hike — which is widely expected when the bank’s Monetary Policy Committee holds it November meeting.

“The uninspiring results we see in our third quarter findings reflect the fact that political uncertainty, currency fluctuations and the vagaries of the Brexit process are continuing to weigh on business growth prospects,” Dr Adam Marshall, the BCC’s director general said in a statement accompanying the survey.

“Against this backdrop, it seems extraordinary that the Bank of England are considering raising interest rates,” Suren Thiru, head of economics at the BCC added.

“With UK economic conditions softening and continued uncertainty over Brexit, it is vital that the MPC provides monetary stability. We’d caution against an earlier than required tightening in monetary policy, which could hit both business and consumer confidence and weaken overall UK growth,” Thiru said.

At its simplest level, the policy dilemma facing Britain’s central bank when it comes to rates, is that it must balance surging inflation brought on by the weakened pound since the referendum, with the slowdown in the economy, dwindling consumer spending and declining inward investment.

A higher base interest rate can help subdue inflation, but also increases borrowing costs, which can stifle the economy. In normal circumstances, the current economic backdrop would mean that the bank would be very unlikely to raise rates, but Brexit’s impact on inflation — which currently sits at 2.9% — is likely to push the bank towards a hike in November.

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