[C]umbria Chamber of Commerce has responded to the surprise fall in inflation by calling on the Bank of England to ditch any plans for an early rise in interest rates.
The Bank’s monetary policy committee voted by five to three last month to keep interest rates on hold at 0.25 per cent.
But with inflation rising, opinion had been shifting towards an increase – the first for 10 years – as a way to boost the pound and so ease inflationary pressure.
Rob Johnston, Chief Executive of Cumbria Chamber Commerce, believes that an increase now would harm businesses by raising the cost of borrowing and denting consumer demand.
He hopes that the unexpected fall in inflation last month, to 2.6 per cent, will persuade the monetary policy committee to leave interest rates on hold when it next meets on August 3.
He said: “It is crucial that the monetary policy committee holds its nerve on interest rates. Raising rates too early could undermine consumer and business confidence.
“More must also be done to ease the burden of high upfront business costs which continue to impede firm’s ability to invest, recruit and grow.”
The fall in the Consumer Prices Index (CPI), from 2.9 per cent in May, was the first since the EU referendum result sent the pound tumbling, so pushing up the price of imports.
Economists had expected CPI to stay at 2.9 per cent or slip to 2.8 per cent before rising again in the autumn.
The Office for National Statistics says the surprise slide to 2.6 per cent was mainly due to falls in fuel prices, which more than offset rising prices elsewhere.
Rob added: “While the fall in inflation in June will surprise many, consumer price growth is likely to resume its upward trend in the coming months with the elevated cost of imported raw materials still filtering through supply chains.
“Inflation remains a major risk to the UK’s growth prospects this year, with rising cost pressures for consumers and businesses likely to dampen overall economic activity.
“However, it remains likely that the current spell of high inflation will be relatively short lived with moderating price growth at the factory gate indicating that inflationary pressures in the supply chain are starting to ease.
“If this trend continues as we expect, inflation is likely to peak sooner rather than later.”
The British Chambers of Commerce forecasts that inflation will hit 3.4 per cent by the end of the year before easing back in 2018 as the impact of the post-EU referendum slide in sterling drops out of the calculation.