CBI urges restraint on interest rates

02 August 2004
The Confederation of British Industry has urged the Bank of England to resist raising interest rates by 50 basis points.

The Bank's Monetary Policy Committee (MPC) meets this week to assess whether a large hike in the cost of borrowing is desirable in the current economic climate.

Most perceive the rise as necessary. The question is to what extent.

Rates were left on hold last month after rises in the two preceding months. The MPC said it resisted a third rise to see how others had bedded in.

Pundits say the MPC will heed the advice of the employers' body and raise the rate by a quarter of a percentage point to 4.75 per cent.

But the MPC may yet adopt a more hawkish stance as consumer borrowing rocketed past £1 trillion last week, and with the retail sector remaining buoyant and house prices still on an upward march, a half point rise is an option if only to compel consumers to borrow less.

John Cridland, deputy director general of the employers body, said a half point rise in interest rates would be "a real blow to business."

"Recent CBI figures have shown that the manufacturing recovery is slowing, and firms also have to contend with rising oil prices. Any surprise rate moves simply risk pushing sterling higher and further squeezing exporters' already thin profit margins."

Martin Temple, the director general of manufacturers' group, EEF, said industry would perceive a half-point rise as "a step too far."

"Having signalled its intention to take a cautious approach to tightening policy, any rise above market expectations is likely to provide upward pressure on sterling and damage the prospects for exporters."