Industry and union leaders slate rate rise

Click to follow
MANUFACTURING employment has plunged through the psychological 4 million mark, it emerged yesterday as industry and union leaders unanimously condemned the Bank of England's surprise decision to hike interest rates.

They warned the quarter-point rise to 5.25 per cent would lead to further job cuts as industry struggled to cope with the strong pound.

The news hit the financial markets, especially the pound. Sterling's index against a range of currencies leapt to 104.1, its highest since early July, from 103.2, and the pound climbed 1.3 cents to just under $1.62. The FTSE 100 index ended nearly 56 points lower at 6,253.6, rescued from earlier lows by gains on Wall Street.

The latest official figures showed just 3.99 million at work in manufacturing compared with 4.16 million when the Bank of England was given power over rates and 6.8 million in 1979.

Sir Ken Jackson, general secretary of the AEEU, the largest manufacturing union, called for greater representation for manufacturers on the Monetary Policy Committee (MPC). Currently only DeAnne Julius, a former chief economist with British Airways and a "dove", has any connection with industry.

"Industry needs a rate rise like a hole in the head. It will make exporting more difficult and will undoubtedly cost manufacturing jobs," Sir Ken said. The MSF, the white-collar union, said the hike would put further pressure on the UK's "hard-pressed" export industry. General secretary Roger Lyons said: "This move will put thousands of jobs in manufacturing at risk."

Anger at the decision is sure to boil over at the Trades Union Congress next week. John Monks, TUC general secretary, said: "This rise is disappointing, premature and unnecessary. The MPC is not giving economic growth a chance."

The Engineering Employers Federation said firms were "exasperated" by a rate hike that would extinguish an emerging recovery. "Away from the South- East, confidence in many regions and industry remains fragile," said director general Martin Temple.

The Confederation of British Industry said the decision was a "disappointment for industry". Kate Barker, its chief economic adviser, said: "The strength of sterling has already dampened manufacturers' investment plans, and is stopping exporters from taking their share of the global recovery."

The Institute of Export warned sterling was "decimating trade". Director general Ian Campbell said: "It's all very well to talk of economic recovery in the domestic market, but a third of UK jobs depend on international trade."

Rachel Spence, head of policy at the North-East Chamber of Commerce, said the region's manufacturers were just starting to bounce back after the last recession. "Companies have been affected by the pound, especially in the textiles sector where they been going to the wall with the loss of hundreds of jobs," she said.

The quarter point rate rise came as a shock because the MPC was known to be split in its forecasts for inflation. What's more, even its most pessimistic member accepted inflation would fall further below its 2.5 per cent target in the near future.

Geoffrey Dicks of Greenwich NatWest said: "It is surprising that this wide range of views should have coalesced around a rate hike this month."

However, the committee's statement yesterday pointed to stronger world demand, the strength of the housing market and the tight jobs market as explanations for its decision. "The last rate cut in June might have been a cut too far," said professor Charles Bean of the London School of Economics.

City analysts interpreted the Bank's move as the first in a series, and most welcomed the announcement. "The economic evidence was overwhelming. It was the right move and there will be more in the next few months," said Kevin Gardiner at Morgan Stanley.

Mr Dicks said: "There is a genuine desire to be pre-emptive so that the peak in rates, when we get there, is not as high as it was last June." Rates could peak at just 6 per cent, he predicted.

"It is clear now the MPC wants to act pre-emptively, and prevent anything like a repeat of the late 1980s boom," said Nick Stamenkovic, an analyst at

Outlook, page 21