May 10, 2011

FSB calls for interest rates to stay low

by Jan Harris

Increasing interest rates in order to combat inflation could damage smaller firms, according to the Federation of Small Businesses (FSB).

Despite recent expectations that rates could rise, the Monetary Policy Committee of the Bank of England kept interest rates at 0.5 per cent, when it met last week.

The rate has been at this level since March 2009, which is bad news for savers but necessary to support SMEs, says the FSB.

In a new paper, Inflation v interest rates, the FSB is calling for:

interest rates to remain at 0.5 per cent until at least the third quarter;
any increase to be phased in gradually;
a freeze on consumer taxes to help curb inflation;
the introduction of an effective fuel duty stabiliser which triggers a reduction in the duty paid and controls prices at the pump.

John Walker, National Chairman of the Federation of Small Businesses, said:

“We understand that rates need to rise to tackle inflation, but with businesses cash-flow and order books low and the consumer already facing a higher cost of living, it could be to the detriment of the small firms that are needed to strengthen the recovery.

“Growth and inflation have started to move in the right direction – according to data from the Office for National Statistics, it is the affect of the VAT increase which is the biggest driver of inflation at present.

“We believe that before a rate rise can be fully considered that we need to see entrenched economic growth.”

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