Early interest rate rise presents “huge risk”, warns BCC

10th December 2014

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An early interest rate rise would present a “huge risk” to the economy, the British Chambers of Commerce has warned.

The BCC expects that UK interest rates will rise to 0.75% in the third quarter of 2015, two quarters later than in its Q3 forecast.

It has downgraded its forecast for GDP growth from 3.2% to 3%, but this figure still represents the fastest growth experienced by the British economy since 2007.

The BCC has also revised down its growth forecasts for the following two years from 2.8% to 2.6% in 2015 and from 2.5% to 2.4% in 2016.

This is largely due to slower than expected growth in household consumption, exports and service.

The BCC welcomed the strong growth, despite the downgraded forecast and urged the government to address issues that are holding back firms, such as access to finance.

John Longworth, director general of the BCC, said: “There is no reason why a 3% growth rate should be the height of our ambitions.

Downgrades to our growth forecast are a warning sign that we still face a number of hurdles before securing a balanced and sustainable recovery. A number of headwinds from the global economy are also having a real impact on British businesses.

“The eurozone is weak, with a real risk of deflation. Growth in emerging markets has slowed and political uncertainty in Ukraine, the Middle East and elsewhere is affecting business confidence. Uncertainty in the economy generally affects consumer confidence as does the consumer spending and debt cycle.”

He warned that our dependence on consumer spending and mortgages mean that the UK economy is particularly sensitive to interest rates.

“Any short-term rate rises could present a huge risk to our economy,” he said. “This would also impact on vital business investment. With UK exports broadly flat, it is crucial to reassess the UK’s overall export growth strategy and the support available to existing and potential exporters.”

But he said that British businesses are forging ahead with expansion and investment plans despite the uncertain economic backdrop.

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