Industry backlash as base rates rise

Michael Harrison

The City greeted yesterday's quarter point rise in interest rates enthusiastically but there was an angry reaction from industry, fearful that it will drive the pound higher and further damage export prospects.

At the end of its first meeting since being given operational independence to set rates, the Bank of England's monetary policy committee sanctioned an increase from 6.25 per cent to 6.5 per cent.

The rate rise had been expected following comments by the Bank's Governor, Eddie George, earlier this week about the inflationary impact of the building society windfalls. Most City economists are pencilling in at least one more quarter point rate rise this year.

The monetary committee said the increase was needed to achieve continued growth in outout and employment at a sustainable rate. It added that the latest monetary and economic data was consistent with the Bank's last inflation report three weeks ago. This said that notwithstanding the strength of sterling, which was helping restrain inflation, there was likely to be a need for a "further moderate tightening of policy".

The Bank declined to comment on how the committee had voted and whether it had backed the rate rise unanimously. This will emerge when the minutes of the two-day meting are published in six weeks' time.

Foreign exchange, equity and bond markets took the rate rise in their stride. The pound firmed initially against the deutschmark but then lost ground to close 1.5 pfennings lower in London while gilts rose marginally and the FTSE 100 Index put on 68.8 points to close at 4,645.

Neil Mackinnon of Citibank said: "I certainly think it's the right move by the Bank and my guess is that there are probably a few more interest rate increases in the pipeline. It is clear that the Bank has decioded not to wait for the Chancellor's Budget. They have decided to establish credibility early on."

But the reaction from business was less favourable. The Confederation of British Industry's chief economic adviser, Kate Barker, said it was disappointed at the timing of the increase because short-term inflationary pressures were subdued at present. "We would have preferred interest rates to be left on hold until after the Budget when any change in the fiscal stance could be taken into account," she added.

"We remain concerned about the impact of higher interest rates on sterling at a time when many exporters into Europe are experiencing a sharp squeeze on their profit margins."

The Engineering Employers' Federation also attacked the increase warning that it would damage the UK's manufacturing base which was still suffering fragile demand, particularly oversaes because of the strength of the pound.

The Institute of Directors backed the move, however, its head of policy Ruth Lea describing the quarter-point hike as "a step in the right direction to pre-empt inflation and maintain stability".

Life and Style
A teenager boy wakes up.
Life and Style
It is believed that historically rising rates of alcohol consumption have contributed to the increase
food + drink
An Apple iPhone 6 stands on display at the Apple Store
businessRegulators give iPhone 6 and 6 Plus the green light
Arts and Entertainment
Critics say Kipling showed loathing for India's primitive villagers in The Jungle Book
filmChristopher Walken, Bill Murray, Scarlett Johanssen Idris Elba, Andy Serkis, Benedict Cumberbatch, Cate Blanchett and Christian Bale
Life and Style
Britain's internet habits have been revealed in a new survey
Life and Style
Playing to win: for Tanith Carey, pictured with Lily, right, and Clio, even simple games had to have an educational purpose
lifeTanith Carey explains what made her take her foot off the gas
Arts and Entertainment
Arts and Entertainment
The White Sails Hospital and Spa is to be built in the new Tunisia Economic City.
architectureRussian billionaire designs boat-shaped hospital for new Dubai-style Tunisia Economic City
Arts and Entertainment
Life and Style
Arts and Entertainment
A still from Duncan Campbell's hour-long film 'It for Others'
Turner Prize 2014
Life and Style
food + drink
Arts and Entertainment
Tony Hadley in a scene from ‘Soul Boys Of The Western World’
musicSpandau Ballet are back together - on stage and screen
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Bearing up: Sebastian Flyte with his teddy Aloysius in Brideshead Revisited
lifePhilippa Perry explains why a third of students take a bear to uni
Arts and Entertainment
Sir Alan Sugar appearing in a shot from Apprentice which was used in a Cassette Boy mashup
artsA judge will rule if pieces are funny enough to be classed as parodies
Arts and Entertainment
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Trust Accountant - Kent

NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

£18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

Law Costs

Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

SQL Developer (Stored Procedures) - Hertfordshire/Middlesex

£300 - £330 per day: Ashdown Group: SQL Developer (Stored Procedures) Watford...

Day In a Page

Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

Isis an hour away from Baghdad -

and with no sign of Iraq army being able to make a successful counter-attack
Turner Prize 2014 is frustratingly timid

Turner Prize 2014 is frustratingly timid

The exhibition nods to rich and potentially brilliant ideas, but steps back
Last chance to see: Half the world’s animals have disappeared over the last 40 years

Last chance to see...

The Earth’s animal wildlife population has halved in 40 years
So here's why teenagers are always grumpy - and it's not what you think

Truth behind teens' grumpiness

Early school hours mess with their biological clocks
Why can no one stop hackers putting celebrities' private photos online?

Hacked photos: the third wave

Why can no one stop hackers putting celebrities' private photos online?
Royal Ballet star dubbed 'Charlize Theron in pointe shoes' takes on Manon

Homegrown ballerina is on the rise

Royal Ballet star Melissa Hamilton is about to tackle the role of Manon
Education, eduction, education? Our growing fascination with what really goes on in school

Education, education, education

TV documentaries filmed in classrooms are now a genre in their own right
It’s reasonable to negotiate with the likes of Isis, so why don’t we do it and save lives?

It’s perfectly reasonable to negotiate with villains like Isis

So why don’t we do it and save some lives?
This man just ran a marathon in under 2 hours 3 minutes. Is a 2-hour race in sight?

Is a sub-2-hour race now within sight?

Dennis Kimetto breaks marathon record
We shall not be moved, say Stratford's single parents fighting eviction

Inside the E15 'occupation'

We shall not be moved, say Stratford single parents
Air strikes alone will fail to stop Isis

Air strikes alone will fail to stop Isis

Talks between all touched by the crisis in Syria and Iraq can achieve as much as the Tornadoes, says Patrick Cockburn
Nadhim Zahawi: From a refugee on welfare to the heart of No 10

Nadhim Zahawi: From a refugee on welfare to the heart of No 10

The Tory MP speaks for the first time about the devastating effect of his father's bankruptcy
Witches: A history of misogyny

Witches: A history of misogyny

The sexist abuse that haunts modern life is nothing new: women have been 'trolled' in art for 500 years
Shona Rhimes interview: Meet the most powerful woman in US television

Meet the most powerful woman in US television

Writer and producer of shows like Grey's Anatomy, Shonda Rhimes now has her own evening of primetime TV – but she’s taking it in her stride
'Before They Pass Away': Endangered communities photographed 'like Kate Moss'

Endangered communities photographed 'like Kate Moss'

Jimmy Nelson travelled the world to photograph 35 threatened tribes in an unashamedly glamorous style