Business leaders yesterday called on Bank of England governor Mark Carney to set out a “clear road map” on interest rates, amid concerns that a run of good news on the economy could trigger an early hike.
The demand came as the central bank upgraded its UK growth forecast for next year and said it expects unemployment to fall more quickly than previously thought.
Offsetting the pressure for a rate rise, however, the Bank predicted that inflation will remain at or below its 2 per cent target for the next three years.
“As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which [the] bank rate will need gradually to rise,” Carney said, as he outlined the Bank’s latest projections.
But he stressed that the recovery from the financial crisis was still in its early days, comparing its progress so far to the equivalent of a country making it through the qualifying rounds for the forthcoming football World Cup in Brazil.
“That is an achievement, but not the ultimate goal. The real tournament is just beginning and its prize is a strong, sustained and balanced expansion.”
John Longworth, director-general of the British Chambers of Commerce, which represents thousands of UK businesses, said low borrowing costs were “crucial to maintaining business confidence and stoking business investment”.
He added: “It is not yet time for the Bank of England to raise interest rates. But [it] must set out a clear road map for slow and incremental rises in rates, which would help businesses plan a successful transition from an exceptional situation towards a more normal one.”
CBI director-general John Cridland said: “The inflation report provides positive signs that the UK recovery is advancing, with broad-based growth and business investment picking up. But it is evident that growth is still not back to normal.
“It was good to hear the governor confirm that a decision to increase interest rates would be based on the sustained strength of the wider economy.”