Pound rises as rates held
Thursday 04 March 1999
Employers' organisations and unions renewed their calls for further rate cuts. Kate Barker, chief economist at the Confederation of British Industry, said: "Exporters are struggling with a stubbornly strong pound."
Ian Peters, deputy director general of the British Chambers of Commerce, described the Bank's inaction as a "bitter pill for manufacturers".
Earlier in the day, the MSF union demonstrated outside the Bank with a giant aspirin. Eddie George, the Bank's Governor, had been criticised for saying earlier in the week that a painkiller was all he could offer businesses struggling with the strong pound.
The pound jumped after yesterday's decision, hitting another record high against the euro. It closed at a new record of 67.48p, off earlier highs of 67.19p.
On the stock market, the FTSE gave up all its earlier gains following the Bank's decision, ending the day down 13 points at 6,048.3.
Privately, some of the business lobby groups admitted that it was not surprising the Bank had left rates unchanged after five cuts in the preceding five months, and with the Budget just a few days away. The Monetary Policy Committee was briefed this week on the outlines of the Budget by Treasury officials.
Most City analysts said rates were likely to fall again later in the spring. Ken Wattret at Paribas said: "We do not see this as the end of the easing cycle, more a pause for breath."
Major mortgage providers such as Halifax left rates unchanged following yesterday's Bank of England decision.
Recent figures have suggested that although the UK economy remains weak, it is no longer slowing rapidly.
Yesterday, the CBI reported signs of optimism on the high street in its monthly distributive trades survey. Sales volumes were flat in February, according to the CBI, and are expected to rise in March.
Alastair Eperon, chairman of the CBI's distributive trades panel, said: "Retailers appear to be a little more confident about short-term business prospects compared with the record falls in optimism seen in the second half of 1998."
The Chartered Institute of Purchasing and Supply said activity in the service sector had fallen for the fourth month running in February, but the pace of decline was less rapid. Its activity index climbed to 48.4 from 48.2 in January. The amount of new business also fell less than the previous month.
Peter Thomson, CIPS director general, said: "The UK service sector is entering calmer waters."
Neither survey is considered by economists to have a strong record of tracking official data, but the slightly more upbeat message yesterday tied in with other recent news.
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