The Bank of England left interest rates unchanged yesterday as new figures showed that exports of British goods to Europe had suffered their worst collapse since modern records began.
The Monetary Policy Committee decided to keep the base rate at a 38-year low of 3.5 per cent, quashing last-minute fears of a surprise increase.
The doves on the MPC were handed last-minute ammunition from official figures showing the UK's deficit on trade in goods with the rest of the world jumped to £3.6bn from £3bn in August.
This was entirely due to an increase in the shortfall with other European Union countries of £700m to £2bn - a jump of more than 50 per cent - the largest widening in the deficit since monthly records began in 1988.
This in turn was wholly due to a £762m, or 8.4 per cent, fall in the volume of exports to our EU partners. Sales to Germany, France, Italy and Holland fell markedly. Andrij Halushka, an economist at the Centre for Economics and Business Research, said: "The appreciation of sterling's euro exchange rate following a rate increase would have hit UK exporters even harder."
The Bank's decision was greeted with relief by business groups and unions, who had advised the MPC not to kill off the emerging recovery in its infancy.
Ian Brinkley, chief economist at the TUC, said: "This gives the economy time to get growing. Higher growth next year depends on a manufacturing recovery this year, which will depend on low interest rates and a competitive exchange rate."
Ian McCafferty, chief economic adviser for the CBI, warned: "The MPC must not jump too soon. There is a danger that recovery might be choked off before it reaches a sound footing."