Business leaders in the West Midlands are urging the government to maintain low interest rates following yesterday's announcement that inflation rose to 4.5 per cent in August.

Birmingham Chamber of Commerce Group (BCCG) said the rise in Consumer Prices Index (CPI) inflation from 4.4 per cent in July had underlined the concern businesses had for the severe damage it was causing to their profitability.

In the second quarter of this year, 24 per cent of service companies and 20 per cent of manufacturers cited inflation as the external factor most affecting their business.  

Christine Braddock, president of Birmingham Chamber, said: "Inflation hurts businesses in many ways. It drives up the cost of raw materials adding pressure on businesses to increase prices.

"However, it also puts pressure on people's wages, decreasing household disposable income and putting pressure on businesses to increase wages. Inflation is also beginning to negatively impact on exporters as it is rapidly negating any gain seen by the devaluation of the pound after the recession.

"Although we expect inflation to continue to rise until next year, when we anticipate that it will begin to fall back towards its two per cent target, we are still concerned by this unwelcome increase.

"We urge the Bank of England to continue to hold interest rates at their historic low of 0.5 per cent and consider extending its programme of Quantitative Easing which could add a much needed boost to the economy."