Outlook: Interest rates

WILL NEXT week bring the fifth interest rate cut in five months? Industry certainly wants it, despite the improvement in confidence in the CBI's latest survey of manufacturing. The City expects it, too. Many analysts are pencilling in a quarter-point move in February, with a couple more to follow.

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,

Start your day with The Independent, sign up for daily news emails
News
news
Arts and Entertainment
tvSPOILER ALERT: Like a mash-up of 28 Days Later, Braveheart, The Killing and Lord of the Rings, this GoT episode was a belter
Life and Style
Angel Di Maria is shown the red card
tech
Sport
Roger Federer after his win over Tomas Berdych
sport
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Guru Careers: Communications Exec / PR Exec

£25 - £30K: Guru Careers: We are seeking a highly-motivated and ambitious Comm...

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral