By Maximilian Clarke

3 in 4 small businesses think the Bank of England should commit to long-term interest rate stability in order to boost business confidence and encourage lending, a survey suggests.

If the Bank were to follow the example of Ben Bernanke, who has recently committed the US' Federal Reserve to a long-term, rock-bottom interest rate, UK small businesses would be more inclined to invest in their growth, boosting the UK economy.

“Reading between the lines of the latest Bank of England Monetary Policy Committee meeting minutes is more than dinner party chit-chat for SMEs [small and mid-sized enterprises] — it has a fundamental impact on how they run their business,” said Philip White, Chief Executive of Syscap, authors of the report.

“Businesses hate uncertainty as much as the markets do, and some comfort on base rate stability would allow them to make crucial decisions about future investments and how they can best be funded.”

“SMEs want the Bank of England to follow the US’s lead in committing to base rate stability over a fixed period. They see it as a simple measure that would help them to help themselves.”

Echoing a similar plea by the Federation of Small Business, the report found that a VAT cut would also be popular with business. 66% of those surveyed saying that they thought the Government should cut VAT to help the economic recovery.

Philip White added: “Business and consumer spending has been massively squeezed. Small businesses are suffering disproportionately because they lack negotiating power with their suppliers to reduce their own costs, and cannot eat into already wafer thin margins to lure customers through price cuts.”

“By easing the pressure on household and business budgets, a VAT cut would free up additional business and consumer spending and could help avoid a double dip recession.”

A massive 97% of SMEs say that the Government still needs to do more to ensure that bank funding is steered towards SMEs.

Earlier this year, the Chancellor initiated Project Merlin - an agreement between the government and the UK's four biggest banks to lend more money in 2011, especially to small businesses. However, according to Bank of England figures published in July, lending to small and medium sized businesses fell more than £2bn short of targets set as part of the Project Merlin deal.


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