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Rate hold ‘accepted’ but Bank must be ready to cut
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10/07/2008
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Manufacturers may have ‘”accepted” decision by the Bank of England’s Monetary Policy Committee to keep interest rates on hold but it needs to be ready to cut them if things get worse.
In the wake of today’s (10 July) decision to peg the rate at 5%, the manufacturers' organisation EEF said it accepted the decision, recognising that the Bank was now fighting on two fronts – rising inflation and preventing recession.
But EEF chief economist Steve Radley, said that keeping rates on hold in a slowing economy and with moderate wage growth should keep a lid on inflationary pressures. “However”, he added, “if further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again.”
Yesterday, the one-time Bank of England Monetary Policy Committee adviser Paul Robinson (pictured), who is now Barclays’ chief sterling strategist, told members of the Manufacturing Leaders Club, meeting at Cranfield School of Business, to expect cuts over the next year.
“The market now thinks an increase is more likely than a cut as the next move. We don’t agree,” he said. Unlike in most other countries, with the exception of the US, Robinson believes UK interest rates will fall. Having held steady for the rest of 2008, cuts will begin to be applied in 2009 bringing the rate down to around 4.4% during March, he forecast.
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Author
Ken Hurst
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