Bank of England faces dilemma after holding interest rates

The Bank of England has held the base rate of interest rate at 3.75%, but now faces a dilemma, according to the British Chambers of Commerce (BCC).

The Bank's nine-member rate-setting committee voted 8-1 in favour of holding the rate, with the Bank's chief economist Huw Pill voting for a rise to 4%.

However, in its announcement, the Bank says further rises were likely if the conflict in the Middle East persists.

David Bharier, Head of Research at the BCC said that holding rates was the 'sensible call given the current geopolitical situation'.

He added: 'The MPC is right to emphasise that monetary policy can not address the root cause of this shock – rising global energy prices. However, the Bank signals that future rate rises are possible if the conflict persists.

'The Bank of England is navigating a fundamentally different landscape to the economic shock in 2022. Back then, raising rates was a blunt but available tool. Today, with growth weakening and unemployment rising, the same lever risks causing greater damage.

'Rate rises increase borrowing costs and suppress investment and demand; this could amplify job losses and further weaken growth.

'Businesses cannot afford policy drift. Targeted support on energy and other business costs will provide initial relief, but lasting resilience requires a step-change in investment, productivity and export growth. The government must use next month's King's Speech to set that direction.'

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