Reacting to the Bank of England decision to raise the base rate to 5%, BCC Head of Research, David Bharier, said:

“With CPI inflation stubbornly higher than forecast at 8.7%, it was expected that the Bank would increase the interest rate further.

“But, while inflation is still the top concern for businesses, interest rate rises are now causing worry for a rapidly growing number of firms with soaring borrowing costs. Businesses will need clarity on the direction of further changes.

“There are several drivers of inflation which could be eased by a policy response. For instance, unprecedented tightness in the labour market is causing firms to bid up salaries, and trade barriers with the EU are driving up costs.

“The BCC has been urging the Government to act on these issues for over a year and is ready to work in partnership with it to ease labour shortages and reduce trade barriers.

“High inflation, high interest rates and slow growth will be a lethal combination for many. Fundamentally, solutions need to be found beyond the interest rate lever.”

Vicky Pryce, BCC Economic Advisory Council member, added:

“There should be absolutely no need to drive the economy into recession in a bid to deal with rising prices.

“There are already signs that the input cost pressures on firms are waning with PPI dropping by 1.5% since April. And although core inflation remains stubborn this does not prevent the overall CPI rate from falling.

“Against this background the Bank must give clear signals on interest rates and commit to cutting them quickly as inflation slows.

“There is a fine balancing act to be struck. Push too hard on interest rates and there is a real danger that more businesses will be driven to the wall, impacting the long-term outlook for economic growth and prosperity.”