Economist warns against rate rise

MORE than 50 Suffolk business leaders attended a sell-out “Economic Breakfast” event featuring the Institute of Directors’ chief economist and director of policy, Professor Graeme Leach.

Prof Leach give his take on how Britain’s economy will develop this year, including the fiscal squeeze, the chances of a double dip recession and the timing of any increase in interest rates.

“It’s a knife-edge decision and there’s huge pressure on the Bank of England, but I believe there’s a strong argument for not raising interest rates,” he told delegates at the event.

“If we exclude the effects of indirect taxes then inflation is 2.4% rather than 4%. Wages are not spiralling up and unit labour costs pressures are flat. Another key reason is that broad money supply growth is negative.”

Prof Leach said that household income was likely to decline in real terms this year but a double-dip recession was unlikely.

“We’re seeing a slower, weaker recovery but that is to be expected after the financial crisis – we’ve come through the economic and financial turmoil of the past few years relatively unscathed,” he said.

Looking ahead to next month’s Budget, Prof Leach urged the Government to protect spending on infrastructure projects but to be more aggressive with spending reductions in other areas.

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He called for the 50% tax rate on Britain’s highest earners to be abolished because it was having a detrimental impact on perceptions of the UK among foreign investors, as well as increasing the numbers of business leaders moving out of the country.

The event, which was held at Wherstead Park, near Ipwich, was organised by the Suffolk branch of the IoD and was sponsored by Leema Risk Management, Ensors Chartered Accountants, Jackaman Smith & Mulley Solicitors and new a sponsor, Fresh Ways to Work, the European Union-funded sustainable transport campaign in Suffolk.