10 Dec 2014
The British Chambers of Commerce (BCC) has warned that an early rise in interest rates could pose a ‘huge risk’ to the UK economy.
Interest rates have remained at their current low of 0.5% for more than five years, but the BCC predicts that they will rise to 0.75% in the third quarter of 2015.
The business group has lowered its UK GDP growth forecasts for the coming three years, bringing the figures from 3.2% to 3% for 2014, from 2.8% to 2.6% for 2015 and from 2.5% to 2.4% for 2016. This is largely as a result of slower than anticipated growth in household consumption, exports and services.
While acknowledging that Britain will be one of the fastest-growing developed economies as 2014 comes to a close, the BCC has warned that the downgrading is a ‘warning sign’ of the various hurdles still faced by the British economy in the bid to secure a sustainable recovery.
John Longworth, BCC Director General, commented, ‘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.
‘Our dependence on consumer spending and mortgages means that the UK economy is particularly sensitive to interest rates. Any short-term rate rises could present a huge risk to our economy. 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.’