Bank chief rejects rate cuts

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The Independent Online
EDDIE GEORGE, the Governor of the Bank of England, yesterday dismissed calls for a cut in interest rates amid growing demands from employers and unions.

His announcement, to the Trades Union Congress in Blackpool, came as Gordon Brown, the Chancellor of the Exchequer, today discloses plans to avert the threat of deepening global recession.

In his speech Mr George signalled that although he felt there would not be a cut in interest rates in Britain, there would be no rise either.

True to his reputation as "Steady Eddie", Mr George indicated to the TUC that the economy was on course to meet the Government's inflation rate target.

His address - the first by a Governor of the Bank of England to a TUC conference - coincided with threats of more job losses because of the strength of the pound. Mr George recognised that his refusal on lower interest rates was "cold comfort" to exporters, but the Bank was operating in "extraordinarily difficult circumstances".

Meanwhile the Chancellor, in Tokyo as chairman of the G7 industrialised nations, will today signal that the world's leading finance ministers are ready to take some concerted action for cuts in rates, particularly in the Far East to raise growth, and to take measures to reduce crippling debt problems in Asia.

The package has the backing of the US Federal Reserve and President Bill Clinton who this week called for united action by Japan, Europe and other nations to "spur growth".

In the UK there were clear signals that interest rates will have to remain at their present level for the time being, in spite of yesterday's fall in the retail price index to 2.5 per cent, hitting the Treasury's target.

Before flying to Japan, where he will speak to the Japanese banking association, the Chancellor said the first step in the recovery package was the G7 statement produced on Monday, after intense negotiations, confirming their view that the "balance of risks in the world economy has shifted", which was seen as a clear signal that the G7 countries believe rates could be reduced.

Mr Brown said co-ordinated action would include a meeting of G7 finance ministers at the beginning of October and the IMF and World Bank summits in Washington.

Tony Blair, also speaking last night, hinted that he hoped interest rates in the UK had peaked at 7.5 per cent as he arrived at Blackpool for dinner with the TUC leaders. The Prime Minister resisted the clamour by union leaders to reflate the economy, and insisted the UK economy was healthier than for more than a decade.

In his address to the TUC, Mr George said the Bank's Monitary Policy Committee had to take into account the whole economy. In an attempt to placate those who thought the committee was filled with "pointyheads, inflation nutters or even manufacturing hooligans", Mr George said: "They would be just as rigorous in cutting interest rates as they had been in raising them."

In an address that was more economics lecture than speech, he was at pains to persuade his audience that the interest-rate setting committee cared about the real economy. "We are ... interested in growth and employment that is sustained into the medium and long term. And permanently lowered inflation is a necessary condition for achieving that," he said.

Ken Jackson, General Secretary of the Amalgamated Engineering & Electrical Union, one of the Bank of England's principle critics, said manufacturing suffered from the "twin evils" of a strong pound and high interest rates. It was a "very conservative body" and it adopted a one-track policy towards the economy.

Roger Lyons, leader of the Manufacturing, Science Finance union, another of Mr George's detractors, said he recognised the need for balance in the economy. "While on balance we would prefer to have skilled, quality manufacturing jobs in the economy than not."

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