IoD: Conditions justified an early interest rate cut

Responding to the decision by the Monetary Policy Committee of the Bank of England to hold interest rates at 5.25%, Dr. Roger Barker, Director of Policy at the Institute of Directors, said:

“It is disappointing that the Bank of England has once again decided not to reduce interest rates. Our own research shows that two thirds of business leaders believe that the right decision would have been to start cutting the bank rate today.

“The UK economy remains fragile. Last week, the OECD forecast that the UK would have the weakest economic growth in the G7 in 2024 and, whilst improving, our own Directors’ Economic Confidence Index shows that IoD members on balance remain pessimistic about UK economic prospects. Furthermore, inflation is forecast to come down sharply in the coming months – below the Government’s 2% target level.

“In our view, these conditions would have justified an early interest rate cut. There is a significant risk in doing nothing. Interest rate cuts will only impact the real economy with a significant time lag and, once definitive evidence of lower inflation has been gathered, it will already be too late. The Bank needs to get ahead of the curve and not repeat the mistake of 2021, where it was slow to adjust monetary policy to the prospect of rising inflation.

“A cut in the base rate is the single most important step that could be taken at the current time to boost business confidence and create the conditions for meaningful economic growth in 2024 and 2025.”