Call for Rate Cut as Manufacturing Declines

Interest Rates

Business groups are calling for a cut in interest rates after official figures showed that British manufacturing output has fallen for the fifth month in a row.

Interest Rates

The 9 September report from the Office for National Statistics revealed that UK manufacturing output dropped 0.2% between June and July – twice as much as anticipated by economic analysts.

Separate figures released on the same day by the National Institute of Economic and Social Research suggested output across the UK economy as a whole fell by 0.2% between June and August.

Paris–based think tank, the Organisation for Economic Cooperation and Development, added weight to the belief that the UK economy is already in recession by forecasting that it will shrink by 0.4% in the final three months of the year.

Economic adviser to the British Chambers of Commerce (BCC) David Kern, has urged the Bank of England’s Monetary Policy Committee (MPC) to act on the manufacturing figures by cutting interest rates. This would lift confidence and ease pressure on companies struggling to cope with a flat economy, he said.

“It is disappointing that the benefits of a weaker pound in terms of improved export competitiveness have not been sufficient to offset the negative effects for manufacturing of a weakening home market,” he said. “The figures indicate that GDP as a whole is likely to record a decline in the third quarter of the year, and we are now very probably in a recession,”.

“A major economic downturn can still be avoided, but early corrective action is needed. The MPC must not delay too long before it starts cutting interest rates,” Kern added.

Forum of Private Business spokesman Phil McCabe said that the decline in manufacturing was a cause for concern, and agreed that the UK economy could be given a boost by cutting interest rates.

“It would have the effect of injecting some confidence into the market and making small firms feel less vulnerable despite the difficult conditions they face,” he said.

The MPC held the interest rate at 5% during its last monthly meeting on 4 September. Economic analysts believe the Bank of England is caught in a dilemma – keeping the interest rate steady risks prolonging economic downturn, but cutting it risks stimulating inflation further.

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