Bank of England urged to avoid rate hike as economic growth slows

The Bank of England should avoid hiking interest rates even as economic growth slowed in the UK, a leading business group has warned, The Northern Echo reported.

According to the British Chambers of Commerce (BCC), the services and manufacturing industries had eased following a surge earlier in the year.

Bosses said, figures showed exports and orders in services were down from all-time highs in the first quarter, with manufacturers not being able to hit similar peaks.

They added both sectors showed falling exports and investment growth, though they still hovered at pre-recession levels in 2007.

Bank of England governor Mark Carney earlier  told The Northern Echo that interest rates could rise ahead of the next General Election.

According to John Longworth, BCC director general, a poll of 7,000 firms showed the recovery was moving faster.

He added a modest decline in investment and exports was not surprising after they "jolted forward" in the first quarter.

He warned, however that a "broken business finance system" constraining firms' access to funds must be fixed, adding the cost of business' credit could be driven up by an early interest rate rise.

He added, the results reinforced the case against the bank making any hasty decisions on raising interest rates in the very short-term.

According to the survey by the business lobby group almost 7,000 companies in the manufacturing and services sectors showed that a balance of 42 per cent of manufacturers reported increasing domestic sales, as against 38 per cent in the first quarter, The Telegraph reported. This represented the highest reading since records started in 1989.

New orders remained steady, and profit expectations too continued to rise. A balance of 51 per cent of manufacturing firms stated they expected profits to increase over the coming 12 months, equalling the previous record set at the end of 2013.

While activity in the UK's dominant services sector eased in the second quarter, according to the BCC domestic orders continued to remain at robust levels.

According to Longworth, these were strong results that showed the recovery was moving forward. He added the members continued to do themselves proud by showing dedication, confidence and resilience.

Capacity constraints which could provide warning signs that inflationary pressures were building were evident in both sectors. According to almost half of the 1,900 manufacturing firms polled by the BCC, they were operating at full steam, representing another record high.