FSB supports base rate hold

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The MPC has been commended on its decision to maintain the record-low base rate of interest

The Federation of Small Businesses (FSB) has given its support to the latest decision of the Bank of England's Monetary Policy Committee (MPC) to maintain the base rate at its record-low level of 0.5 per cent.

Having last undergone change in March 2009 when the MPC cut the base rate to its lowest ever level, the UK has now witnessed its longest period of stability in the base rate of interest since the second world war.

It is therefore encouraging that companies continue to benefit and flourish in the low-interest environment, with the FSB keen to see this situation continue for the foreseeable future.

FSB national chairman John Allan stated: "With inflation likely to drop into deflation, encouraging investment should continue to be the top priority.

"Our members' confidence remains strong, with many small businesses planning to invest in their firms, hiring new staff and increasing wages. When the time does come to raise rates, it should be done gradually to allow businesses to absorb costs and plan ahead."

Indeed, Mr Allan stated that the latest decision to hold the base rate is one that will be welcomed by many business leaders across the UK.

Responding to the latest MPC announcement, David Kern, chief economist at the British Chambers of Commerce (BCC), added his perception that contrary to many expectations, the low level of inflation that typified recent months has remained unchanged and now presents a strong possibility that deflation will take hold in the near future.

This could be positive news for the nation as a whole though, as a period of deflation could help to bolster the coffers of the general public, leading to increased spending overall and a boost to significant areas of the economy including retail and services.

He argued: "The main cause of low inflation in the economy is the fall in energy and food prices, which will help to ease cost pressures for consumers and businesses, and will support economic growth.

"To sustain business confidence we need a firm commitment from the MPC to keep interest rates on hold until at least early 2016."

Annual consumer price inflation in March stood at zero per cent, meaning it could easily shift into deflation territory in the coming months.

Both the FSB and BCC are therefore strongly in favour of an ongoing hold on any increase the base rate of interest for the UK at present, as it is hoped that by doing so companies will be able to more confidently plan for the future and help the economy as a whole move towards a more stable and sustained recovery.

Released at the end of last month, the latest quarterly figures for gross domestic product in the UK show the economy grew by 0.6 per cent during the final three months of 2014 and was estimated to have grown by 2.8 per cent for the year as a whole in comparison to 2013.