Earlier this month, the Bank of England sanctioned a further rise in its benchmark interest rate and warned the UK economy is now facing a ‘very sharp slowdown.’
Rates were increased by a quarter of a percentage point to 1% as the Bank attempts to stem the rapid rise in prices. However, Governor Andrew Bailey admitted the Bank is in a “very difficult position” as it grapples to balance inflation concerns with “a material deterioration in the outlook” for growth.
While business groups acknowledged the need to tackle soaring inflation, they also said the rate hike and deteriorating economic outlook would cause alarm among households and businesses. They called on the Chancellor to loosen fiscal policy in order to ease the crippling cost pressures being felt by both consumers and businesses.
Responding to the interest rate decision, CBI Lead Economist Alpesh Paleja said, “Another rise is warranted, given the persistence of high inflation. However, the Monetary Policy Committee are walking an increasingly fine line. Further action to curb price pressures needs to be weighed against the increasing need to protect growth, particularly in light of a historic cost-of-living crunch. Government needs to take further action to shore up the broader resilience of the UK economy.”