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Round-up of the week

Posted on 5th February 2016

Interest rates stay at 0.5 per cent

The Bank of England's Monetary Policy Committee (MPC) has opted to keep interest rates on hold at 0.5 per cent for at least another month.

The cost of borrowing has remained at a record low since March 2009, although improving economic conditions at home have led to speculation that an increase could be just around the corner.

Nevertheless, the British Chambers of Commerce (BCC) does not believe the MPC's decision is surprising, in light of "the turmoil seen in global financial markets in recent months".

David Kern, chief economist at the body, insisted that with growth in China and the US weakening, as well as muted inflationary pressures in the UK, the Bank of England must keep interest rates low for the foreseeable future.

The Institute of Directors (IoD) was similarly unsurprised by the MPC's decision, although it has warned policymakers they cannot afford to be "overly accommodative" and that they "could be stoking debt-fuelled asset bubbles".

Chief economist James Sproule said: "Low inflation has clearly tied the MPC’s hands. However, there remains little reason to be concerned that the near-zero rate of inflation will be anything but good news for the UK. The reason prices are not shifting is because global oil prices have collapsed. This is completely different to if low prices were being driven by a lack of consumer confidence."

He urged rate setters to remain "vigilant about what global uncertainty means here at home", as well as to provide greater clarity about when a rate hike might happen if stability returns.

"The trigger for normalising rates remains economic strength rather than inflationary concerns," Mr Sproule added.

Lack of literacy and numeracy skills among youngsters 'is alarming'

The IoD has expressed concern after a study found teenagers in England rank well behind their counterparts in other developed countries when it comes to literacy and numeracy.

Research by the Organisation for Economic Co-operation and Development also found that nine million people of working age struggle with reading and writing.

The IoD has said it is "alarmed" by the findings, particularly as many industries are already struggling with skills shortages.

Seamus Nevin, head of employment and skills policy at the IoD, commented: "Employers need the right talent and skills to continue to grow."

He acknowledged that the report suggests recent education reforms, such as tougher GCSEs, are likely to have a positive effect and improve standards. However, Mr Nevin said the government must also aim to increase retention rates and recruitment of teachers, particularly in "vital shortage areas like science and maths".

Business groups respond to draft UK-EU deal

Business leaders have given a cautious welcome to the draft agreement published by president of the European Council Donald Tusk.

The document outlines the possible terms of the UK's future membership of the European Union and comes before Britain prepares to vote on whether or not to stay in the organisation.

According to the IoD, the deal that has been presented is "better than we expected", as it addresses issues such as unnecessary red tape from Brussels, making the EU more competitive and ensuring the UK is "not on a path to more political integration".

However, director-general Simon Walker said that while the proposals "hold promise", nobody "should get carried away just yet".

John Longworth of the BCC was similarly cautious, saying business leaders will want to wait to see a final UK-EU deal before considering the full impact on their firms and their voting intentions.

"A lot can change in the weeks ahead," he commented.

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