'Don't jeopardise growth' business lobby tells BoE
A BUSINESS group has warned that an early rise in interest rates would be "premature and risky" as it predicted economic growth would be lower than previously thought, while unemployment is likely to be higher.
The British Chambers of Commerce (BCC) said it expected the Bank of England to increase the base rate in May, but it said the fragility of the recovery and the tough fiscal measures expected in the Budget meant a hike would be "premature and risky".
The group said interest rates were likely to end 2011 at 1.25%, increasing to 2.5% in late 2012. But it said that while such a move was not likely to push the economy into a new recession, it would slow growth and add to the jobless total. The group has revised down its GDP forecast for 2011 from 1.9% to 1.4%, due to the unexpected fall in economic growth during the final quarter of last year, as well as the prospect that rates could rise in the second quarter.
It is also expecting unemployment to be higher than it previously predicted at 2.65m by early 2012, up from its forecast of 2.6m. But the BCC said the economy would recover quicker in the medium term, raising its estimate for GDP in 2012 to 2.3%, up from 2.1%.