Businesses welcome Bank's interest rate 'gamble'

Business organisations have welcomed the Bank of England's decision yesterday to lower the Bank interest rate to 5.25%.

The 0.25-percentage point cut had been widely anticipated, and came after repeated calls from the business lobby for such a reduction.

The British Retail Consortium had been among the most vocal proponents of a reduction in the rate. Commenting on the move, director-general Stephen Robertson said: "Having rejected a January rate cut, the Bank is right to act now to refuel the faltering economy and ensure it doesn't stall.

"Many retailers are suffering as costs rise much faster than selling prices, so job cuts could be forced upon retailers under pressure," he said.

The British Chambers of Commerce (BCC) also welcomed the move, adding that it believed a further reduction to 5.0% would be necessary in March. BCC economic adviser David Kern said that the cut had been "necessary to the economy".

"Today's move, though vital to sustain confidence, is not adequate on its own," he added. "The recent dramatic rate cuts in the US highlight the importance of early action... and we would have welcomed a bold UK move to 5.0% today."

However, the Institute of Directors (IoD) recognised that the Bank had been faced with a difficult decision, as high energy and food prices are expected to drive inflation above the government-set target of 2.0% in the coming months.

"The Bank of England is reducing interest rates just as inflation is about to head well above target," said IoD chief economist Graeme Leach. "There is a clear assumption that the slowdown in the momentum of growth will ultimately outweigh the upward pressures on inflation."

"This may well prove correct, but we can't be absolutely sure and today's decision was a small gamble."