Outlook: Interest rates
Wednesday 27 January 1999
The arguments for additional reductions are essentially the same as they have been for some time now - they are to do with concern about the recession in manufacturing, and how far this has spilled over into the rest of the economy.
Growth did slow throughout last year, from 0.9 per cent in the final quarter of 1997 to 0.2 per cent by the last quarter of 1998. Inflation has been on or close to target for six months, and may fall further in the short term. The fact that growth of output in services has also weakened from 1.3 per cent to 0.6 per cent over the same time scale is, according to the lobbyists for another rate cut, proof that the economy needs more tonic.
But the case for more cuts right now is no longer totally compelling. The wait-and-see argument has got back on its feet after a series of knock- out blows between September and November.
At its heart is evidence that the economy is heading for a soft landing after all. The 0.2 per cent rise in GDP for the last quarter, reported last week, was stronger than most analysts had feared. Services have slowed, but not as much as gloomy surveys had suggested. Retail sales have been dismal as far as we know, but the January results are needed before the final verdict on the season can be passed. If this is as bad as it is going to get at home, there is every reason to leave rates unchanged for now unless there are new external blows.
Even the deflation claimed by the CBI is no reason for acting in haste. When inflation is low and stable, some prices are bound to fall. They are falling in manufacturing. But this is a relative price movement. What matters to the Bank is inflation overall, and this rate has scarcely budged, despite the economic slowdown.
So the members of the MPC should sit on their hands in February. Rather, they should wait for evidence on the first quarter of this year, for the revamped average earnings figures, and to hear from the Treasury what the Budget arithmetic will look like. Another month will not matter. At times of particular uncertainty about the economy,
- 1 Man on naked bike ride gets ejected after becoming aroused
- 2 Fifa corruption: Europe plots to stage an 'alternative World Cup' in place of Russia 2018
- 3 How much sex should I be having?
- 4 Jaden Smith wears gender fluid dress to high school prom with Hunger Games actress
- 5 Betting company 'refuse to pay' after student wins £1,000 from 50p bet on Roger Federer
Caitlyn Jenner, formerly Bruce Jenner, reveals new look on Annie Leibovitz shot Vanity Fair cover
Russian military jets and US destroyer clash in Black Sea 'posing danger to stability'
Ed Miliband returns to the backbenches but it's all a bit awkward as he tries to avoid eye-contact with fellow Labour MPs
Photographer who performed naked shoot in China's Forbidden City sparks outrage
Man on naked bike ride gets ejected after becoming aroused
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Why this year's general election was the most unfair in Britain's history
iJobs Money & Business
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...
£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...
£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...