'Conviction wavering' over BoE rate hike

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A potential increase in the base rate is causing headaches for firms

Members of the business community and the general public alike have been debating the likelihood of a rate increase in the UK in the near future for several months, with the Bank of England (BoE) increasingly expected to act before the year is out.

However, Reuters reports that new developments may lead to BoE officials losing some of their appetite for an increase in the base rate from its existing historic low level of 0.5 per cent anytime in the near future.

Indeed, Nina Skero of the Centre for Economics and Business Research told the publication: "Global risks have elevated over the past month, which heightens the chance that the first rate hike is delayed."

Ms Skero refers in her statement to the ongoing downturn that has been evident in China over recent months, with the nation's Shanghai Composite Index having lost almost 50 per cent of its value since mid-June.

This, coupled with the crisis over Greece, falling demand for precious commodities like oil due to lower-than-expected production volumes in both Europe and Asia (again, in China in particular) and a new belief that the US Federal Reserve is to put off its own rate increase, means analysts are less certain regarding the timeline for a UK base rate rise.

A clear understanding of when the base rate is expected to increase is essential for effective business planning in the UK right now, as companies cannot be expected to plan for the future when one of the most important factors in economic stability is being left up in the air.

Inevitably, the base rate must rise at some point due to its unsustainable position at present, but when it does so, some analysts fear this could lead to a detrimental impact on the nation's burgeoning recovery.

Should the base rate rise, this will lead to lower levels of disposable income for many sections of UK society, which in turn is likely to feed through into lower overall consumer spending that could have far-reaching effects for business across a gamut of industries.

As such, a clear timeline for the BoE to move away from the historic low levels of interest being witnessed at present is important, but this is something that is not available right now.

At the BoE's latest Monetary Policy Committee meeting earlier this month, eight of the nine committee members voted in favour of a hold in the base rate, with just a single dissenting voice arguing the time could now be right for an increase.

It now remains to be seen how the unfolding financial crisis in China is addressed in the coming weeks and how global markets will react to these moves, while a focus on safeguarding consumer spending when the inevitable base rate rise does happen is also something businesses should be concerned about.

Moreover, it is becoming increasingly clear that the unstable international economic environment does not appear conducive to a UK rate rise in the very near future - and this is a reality that could be met with a mix of both consternation and happiness by some business leaders given the fact that an impending change remains unlikely, but the uncertainty still remains.