Business leaders believe interest rate rise will not curb wage increases

Today’s interest rate rise will not reduce wage increases, according to business leaders.

The Bank of England increased the base rate from 5% to 5.25% in an effort to curb inflation.

But CBI chief economic adviser Ian McCafferty said it was unlikely to achieve its aim of reigning in wages.

“It is disappointing that, with only tentative indications about the outcome of the wage round, the bank has already decided to increase interest rates.

“If part of the intention was to dampen wage increases, it is doubtful a rate rise will have the desired effect.”

Consumer price inflation has recently risen to 2.7%, the highest level in more than a decade.

But the CBI insisted that inflation was set to fall back towards the bank’s mid-point target of 2% during the second half of 2007.

“The economy is already expected to slow over the course of the year,” added McCafferty.

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