Fife businesses get ready to quiz the Bank of England on interest rates

27th October 2022

How will Sunak appointment and his fiscal decisions affect the Bank of England’s interest rate policy?

Following the appointment of Rishi Sunak as the new UK Prime Minister, all eyes will now turn to the statement from the Chancellor that is due on 17th November, and which will set out the Government’s medium-term fiscal plan to reduce the budget deficit but also create a deliverable plan for growth that will boost the productive capacity of the economy. Spending cuts and tax rises are expected. This comes at a time when there are clear signs that the economy is already slowing as household and business budgets are battered by high inflation. The threat of massive increases in energy bills next year when the current 6-month cap ends looms for households and businesses. Business confidence is at lows not seen for a long time and business investment is sluggish to say the least. The UK Government, therefore, faces a really difficult task: how to reassure the markets about its commitment to stable and balanced public finances without adopting punitive measures that will push the economy into recession and damaging future growth prospects. The decisions the Government will announce will in turn have a huge impact on the short to medium-term approach the Bank of England takes to bear down on inflation..

Commenting on the policy dilemma facing the new Prime Minister, Alan Mitchell, Chief Executive of Fife Chamber, said: “The new Prime Minister and his Chancellor have some big decisions to make and there don’t appear to be any easy answers. If they aren’t seen to be taking decisive steps to reduce the projected budget deficit, the markets likely drive down the value of the pound again and the Government will have to pay a lot more interest on the money it borrows, and this will feed through to higher mortgage and business loan/overdraft rates. If the Government increases taxes or reduces spending by too much, then it will suck too much demand out of an already fragile economy.

“The Bank of England will be listening closely to what the Chancellor says because his decisions will have a major influence over how far and how fast it increases interest rates. They also have a difficult job ahead trying to navigate the country through the current economic crisis, so we are delighted that Fife Chamber members will have an early opportunity to learn what approach the Bank might take. That opportunity arises from a visit to Fife Chamber on 4th November by The Bank’s Deputy Governor for Banking and Markets, Dave Ramsden, during which time he will make a speech to members. This is a unique opportunity for Fife businesses to put their questions to him and to share their current challenges with him. Public policy figures of this level of seniority and influence are rarely in Fife so I expect he will be asked lots of questions. The meeting is open to all businesses in Fife, not just Chamber members, and anyone wishing to attend should contact us on [email protected].

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