British manufacturers urge Bank to hold fire on rate rise

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The Independent Online

Manufacturers are urging the Bank of England to keep interest rates on hold this week despite widespread expectations in the City of a quarter-point hike to 5 per cent.

The EEF, the manufacturers' association, said weakening global economic growth - particularly in the US - and low pay rises in the UK should persuade the Bank's Monetary Policy Committee (MPC) to stay its hand.

Steve Radley, chief economist at the EEF, said an enlarged workforce, due to rising immigration and older workers staying on in their jobs, was keeping a lid on pay inflation and combating the need for a rate increase. "While this may be the tightest call for some time, we believe that the weight of evidence remains against a rise."

Manufacturers are concerned that another hike in the cost of borrowing will make the pound even stronger and exports more expensive. Rates last went up in August, the first rise in two years.

But economists predict another increase this week and most expect more to follow in the spring to curb inflation and to rein in an economy in danger of overheating. Their conviction was strengthened by figures out last week showing higher-than-expected growth in the service sector in October.

There are further concerns at the Bank about the relentless upward march in house prices. According to the Halifax, annual property inflation is running at 8 per cent.

MPC members will also take new figures on individual insolvencies into account when they meet this week. In the third quarter this year, there were 27,644 personal insolvencies in England and Wales - an increase of 55.4 per cent on the same period a year ago. This is partly due to new rules that have made it easier for people to declare themselves bankrupt. But the UK consumer's insatiable appetite for credit card borrowing will heighten the need to curb spending with a rate rise.