MPC unlikely to cut interest rates
Wednesday 02 September 1998
The Bank of England's monetary policy committee has its September meeting next week, but few analysts expect it to cut interest rates then, although there is a growing feeling that rates will start to fall by the end of the year.
Stephen Hannah, chief economist of IBJ said: "I don't see a cut as conceivable in the near term. The principal issue is the underlying state of the labour market and continuing growth in services."
Richard Jeffrey of Charterhouse Tilney said he expected the MPC to discuss the possibility of cutting rates next week, "but I would be surprised if more than one or two members argued the case very forcefully."
Last week the CBI called for an urgent cut in interest rates after reporting a collapse in output and orders in its latest survey.
The turmoil on stock markets in recent days has also increased speculation that the Federal Reserve and other central banks might try to restore stability by cutting rates. Most analysts, however, think the Dow Jones index would have to drop much further - to perhaps 6,000 - before the Fed steps in.
Meanwhile the latest evidence on the state of the UK economy continues to point to a two-speed performance, with manufacturing bearing the brunt of the downturn. The monthly purchasing managers index, published by the Chartered Institute of Purchasing and Supply, showed a further contraction of manufacturing output - the fifth consecutive monthly fall.
Yesterday's money supply figures showed slightly faster than expected growth. M0 - the narrow measure of money supply - grew by 0.6 per cent in August, taking the annual rate up from 5.8 per cent to 6.2 per cent.
Further signs of robust consumer demand were a pounds 1.1bn increase in consumer credit and a sharp rise in mortgage lending.
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