The Bank of England’s decision to increase interest rates by 0.25% to 0.75% will impact consumer confidence and bring “more turmoil” to the high street, financial experts have said.
However, in its Quarterly Inflation Report, the Bank of England said that tough times seen on the high street were not a result of falling consumer confidence but a shift to online spending.
The bank said: “Although in the past year the number of retail closures have increased and retail footfall has fallen, contacts of the Bank’s agents suggest that mainly reflects shifts in consumer demand to online stores and from goods to services.”
Simon Underwood, business recovery partner at accountancy firm Menzies LLP, said: “The timing of this interest rates rise will come as a surprise for many in the business community. With mixed economic data and growth forecasts looking less optimistic than they were earlier this year, the decision to increase the base rate will be concerning to businesses, particularly with Brexit just around the corner.
“The MPC may have been swayed by the summer heatwave and England’s success in the World Cup, which have had a positive impact on consumer behaviour, boosting retail sales temporarily. However, it is unlikely this positive sentiment will be maintained and today’s decision to increase rates will impact consumer spending ahead of the critical final quarter.
“For businesses serving consumers in the retail and hospitality and leisure sectors, today’s decision will be very unwelcome news and we should expect more turmoil on the high street in the short to medium term.”
The Bank of England has raised interest rates to their highest level since March 2009, as it hopes to see inflation fall back to 2% by 2020.
An interest rate rise had been predicted earlier this year but was postponed after the economy took a downturn in the first quarter. Today’s announcement implies that the fall is believed to have been a temporary blip brought about harsh weather due to the Beast from the East.