Eddie George rejected calls yesterday for a shake-up of the membership of the Monetary Policy Committee to include more people with direct experience of industry.
Mr George, the Governor of the Bank of England, defended the MPC's record on monetary policy in the face of criticism that it had fuelled a surge in the pound that was crippling manufacturers' ability to export. He said achieving low inflation was better for the economy than bringing down the pound.
His comments came as new figures showed that manufacturers' export orders fell last month for the first time in a year as industry buckled under the weight of the pound. This will fuel calls for the Bank to keep rates on hold when Mr George and his colleagues on the MPC meet today and tomorrow.
Mr George told the House of Lords' Monetary Policy Committee the MPC took the strength of sterling into account when it made interest decisions. But he said targeting specific sectors would risk putting the whole economy at risk of accelerating inflation.
He rejected suggestions that the MPC should include more people with experience of industry rather than academics. "I just don't accept that because someone is an academic they don't understand manufacturing industry," he said. "I don't think manufacturing would benefit by having someone perceived to be a representative of an interest." Only one of the nine-strong team, former British Airways economist DeAnne Julius, has spent a long time in industry and the most recent appointment is a professor at the London School of Economics.
According to the Chartered Institute of Purchasing and Supply (CIPS), total manufacturing output rose in April at its slowest rate since May last year. New export orders fell for the first time since April 1999.
Firms blamed the strong pound for the loss of overseas orders and the uncertainty over the future of Rover Cars for weaker growth at home, according to CIPS.
Yesterday's survey is the latest piece of evidence pointing to weakness in the manufacturing sector. The first estimate for UK economic growth in the first quarter came in much lower than expected because of a slowdown in manufacturing. And last week the Confederation of British Industry warned that its members were on the brink of recession.
These surveys will intensify the dilemma for the MPC, which must raise rates to curb inflationary pressure from the domestic economy, especially the labour and housing markets, without plunging industry into recession.
Most City economists expect a quarter-point rise to 6.25 per cent although they admit the decision is finely balanced. A hike would provoke howls of fury from industry, trade unions and backbench Labour MPs.
Sterling is close to 14-year highs against the weak euro, making British goods more expensive in Europe.
The contrast was highlighted by the steel industry, which suffered a 1 per cent contraction in the first quarter of the year while Germany and Italy grew by 17 and 12 per cent respectively, the UK Steel Association said yesterday.
In sharp contrast, the purchasing managers index for the eurozone hit a record in April, fuelling speculation that the European Central Bank will again raise interest rates.
Manufacturers reported the strongest pace of growth since the survey began three years ago - against forecasts of a slight decline. Lorenzo Codogno, an economist at Bank of America, said: "These are quite strong figures and are not consistent with the current level of interest rates."Reuse content