Bank urged to keep rates steady

Click to follow
The Independent Online

Manufacturers have called on the Bank of England to leave interest rates at 4.75 per cent this week, but to take care not to signal that rates have peaked.

The EEF manufacturing employers group has warned that any sign that rate rises are now off the agenda could be counterproductive. The group's economist, Steve Radley, said: "With growing evidence of slowing consumer spending and housing markets, the Bank can afford to leave rates on hold. However, it is too early to say that rates have peaked and to signal that would be counterproductive", as it might refuel the housing market and consumer spending.

The Bank will almost certainly keep interest rates unchanged on Thursday. All but one of 45 economists polled by Reuters last week expected no change in rates, and 18 said they had already peaked.

Economic growth in the third quarter was even weaker than expected, at just 0.4 per cent on the quarter, and all signs are that the once-booming housing market is cooling. Inflation also surprised on the downside, with the targeted consumer price measure falling to 1.1 per cent in September.

Were it not for rising petrol prices, inflation would have fallen below 1 per cent, prompting an explanatory letter from the Bank's Governor, Mervyn King, to the Chancellor.

Philip Shaw, at Investec, said, "Recent data should virtually have put paid to any expectations of a rise this week. While recent evidence is consistent with a soft landing in the housing market, it is too early to rule out something nastier. From the point of view of monetary policy, the correct response is to wait and see."