Interest rate increases alone will not be enough to overcome the current inflation crisis, British Chambers of Commerce (BCC) Head of Research, David Bharier, has warned.
He said the hike was not without risk for businesses with loans and overdrafts and said the Government had to take action to address the labour market shortages and rising taxes.
Interest rates rose to 1.75% – the biggest rise in 27 years – with inflation now set to hit more than 13%.
The UK is forecast to fall into recession this year, with the longest downturn since 2008 predicted.
Mr Bharier said: “This rise is the clearest signal yet of the Bank of England’s intention to get inflation under control. Spiralling prices are cited by businesses as by far and away the top concern right now.
“However, given the extremely precarious state of the economy, this decision is not without risk for businesses and consumers that are exposed to banking or overdraft facilities.
“There are many causes of the current inflation crisis – global supply chain problems, trade barriers, soaring energy costs, increased taxes, and labour market shortages. Interest rate rises alone will do little to address these.
“Worryingly, our research indicates strongly that most small businesses are not investing for growth, and that longer-term confidence is beginning to wane.”
The Bank of England’s Governor correctly highlighted in his recent Mansion House speech how the incredibly tight labour market is putting upward pressure on inflation.
The BCC has written to the Government outlining a three-point plan on how it can work with businesses to solve these recruitment difficulties.
The steps are:
- Firms must be encouraged to find new ways of unlocking pools of talent – by investing more in training their workforce, adopting more flexible working practises and expanding use of apprenticeships
- Government must help employers invest in training by reducing the upfront costs on business and providing training related tax breaks
- The Shortage Occupation List (SOL) must be reformed to allow sectors facing urgent demand for skills to get what they need