Government 'disregards' grappling pressures of rates and energy costs - Chamber

The Bank of England has raised interest rates for the second time in three months in a bid to combat soaring inflation, which is currently at a 30-year high.

The Monetary Policy Committee voted five-four to increase its base rate from 0.25 per cent to 0.5 per cent, as fears over the impact of Covid-19 on the economy continue to linger. Four members of the Committee voted for a sharper increase to 0.75 per cent in order to tackle rising prices and bring them more swiftly back to the Bank 's 2 per cent inflation target.

The decision to increase interest rates followed a rise in inflation to 5.4 per cent in December (its highest level in almost 30 years) fuelled by a sharp rise in household energy bills and ongoing supply chain issues.

Inflation is expected to continue rising in coming months and will likely peak past 7 per cent in April, leading the Bank to confirm that it will continue to raise rates this year and next, to 1.5 per cent by mid-2023.

Prior to the Monetary Policy Committee 's vote, energy regulator Ofgem announced that the dual-fuels price cap would be increasing by £693 from April to £1,971 per year for 18 million households, prompting Chancellor Rishi Sunak to share the Government 's plans to support households during this difficult time.

Rishi Sunak 's plan aim to soften the blow via council tax rebates and assistance with bills, and would see the majority of families given a total of £350 to help them adjust to higher prices. It will mean a £200 discount on energy bills for households from October, which will be paid back over the next five years at £40 per year starting in April 2023.

In England, households in council tax bands A to D will get a £150 discount from April 2022.

Raj Kandola (pictured), head of Policy at the Greater Birmingham Chambers of Commerce, said: “For the second consecutive quarter, the Bank of England acted decisively to tighten monetary policy as the rate of inflation continues its rapid ascent.

“As ever, the MPC faces the unenviable task of trying to minimise the impact of rising prices and ensuring any intervention doesn 't diminish levels of business investment.

“The continued fallout from Brexit, coupled with the supply chain and labour market shortages caused by Covid-19 means the surge in inflation will continue well into next year and the issue will be brought into sharper focus following Ofgem 's decision to raise the energy price cap.

“The Chancellor 's intervention on energy bills is a worthy attempt to protect living standards for the poorest in society, and relieves part of the cost pressures energy companies are facing, but the lack of support for businesses consuming energy shows a total disregard to the inherent cost pressures many are still grappling to overcome as we emerge from the pandemic.

“The Government must continue to follow through with its ambition of secure, affordable, and low-carbon energy. This must include supporting the economy on more immediate issues, such as energy efficiency, but also securing energy storage to stabilise energy prices in the future. ”

“Right now, we need the Treasury to act decisively and help those businesses under extreme pressure to raise prices.

“Maintaining a long-term reduction in levels of VAT, cracking on with meaningful reform of the business rates system and rethinking the decision to raise National Insurance in April would be a sensible start. ”