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Small business groups welcome a drop in inflation

Small businesses groups welcome a drop in inflation.

Small businesses groups welcome a drop in inflation.

The British Chambers of Commerce (BCC) have suggested that the low inflation figures in May should help keep the base interest rate at the low level of 0.5%.

David Kern, the Chief Economist at the BCC, commented that the 0.3% fall in inflation reported by the Office of National Statistics (ONS), is a sign that inflation hit it’s peak in April.

Mr Kern went on to say that, considering the continued weakness of the economy, coupled with the tough debt reducing measures expected to be included in the Emergency Budget next week, it is vital that the Bank of England’s Monetary Policy Committee (MPC) keep the base interest rate low for the foreseeable future. He warned that any rise in interest rates at this early stage is likely to lead to a “double-dip” recession.

On a more positive note, he added:

“With growing confidence that the UK will be able to deal with its deficit, the MPC can be reassured that maintaining low interest rates will not worsen inflationary pressure. This will create the right circumstances for businesses to invest and drive a sustainable economic recovery.”

In spite of Kern’s optimism, £10billion of tax rises and spending cuts in the public sector, there is still a real worry over UK economic growth for the next few years, with a mere 1.2% growth in the Gross Domestic Product (GDP) for 2011.

With unemployment likely to rise due to public sector cuts, tax increases for income tax and small businesses, does it really matter how low inflation and interest rates are if both small businesses and private citizens are going to be taxed to the hilt?

It is likely to make a difference eventually as the UK deficit will eventually be paid-off, but at what cost?

Related articles:

Construction bears brunt of spending cuts

UK unemployment continues to escalate


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