Bank of England ignores pleas for interest rate cut
Jan 10 2008 By Sarah Judd and Jez Davison
BUSINESS leaders across the North-east gave a mixed reaction as the Bank of England ignored pleas for a second cut in interest rates today.
In what has been described as one of its toughest decisions for years, the Bank’s Monetary Policy Committee (MPC) kept borrowing costs on hold at 5.5%.
Economists said it was likely to have been a tight vote after the two-day meeting and predicted the committee will wait to assess the impact of December’s easing and gather fresh data on inflation prospects before cutting rates in February.
Alan Hall director of EEF Northern, the manufacturers’ organisation, said the decision not to reduce rates was a matter of concern: "They must have information that we perhaps do not have where they feel they can wait before moving on interest rates," he said.
"The EEF would urge them to study the economic scene further and to make at least a quarter point move at the February meeting."
Alastair Thomson, chair of the Tees Valley branch of the Institute of Directors, said that a rate cut would have eased the growing pressure on Tees Valley businesses, particularly those that have made significant capital investments.
He said: "Although we are not in recession there has definitely been an economic slowdown and businesses need all the help they can get to grow and protect their position in the marketplace."
Poor Christmas trading figures from the High Street and evidence of a cooling housing market had prompted calls for a cut of at least 0.25% in rates.
But there were also concerns over the pressure on inflation from oil prices close to $100 a barrel and rising food costs.
Steve Cochrane, owner of designer fashion retailer Psyche in Middlesbrough - which reported a 9.7% sales growth over the Christmas period - said the bank's decision to keep rates on hold represented a "missed opportunity."
"A cut in rates would have helped that feel-good factor, helped with people's liquidity and got them spending again," he said.
"Despite the fact we bucked the trend, retail figures in general have been very disappointing and at the start of the year everyone has been looking to see what the MPC was going to do. A cut would have given everyone a boost."
CBI Chief Economic Adviser Ian McCafferty said greater calm in the money markets had probably tipped the balance in today’s decision.
"While it is still much too early to declare that markets are returning to normality, this has allowed the Bank to take its time in assessing where the economy is going for next month’s meeting," he said.
Paul Woolston, senior partner at Pricewaterhouse Coopers LLP, Newcastle, said: "A small cut in interest rates would have been welcome as we expect slower growth this year.
"We understand the dilemmas that faced the Monetary Policy Committee. After cutting rates in December, the committee’s natural inclination was probably to wait until at least next month. Therefore a decision to wait wasn’t surprising, but in our view it was the wrong one.
"Given the immediate challenges facing the economy, the risks of waiting are greater than the risks of acting early. By deciding not to cut interest rates the committee has increased the risk that emergency measures will be needed later in the year."
