Relief is in sight for home-owners
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Your support makes all the difference.THE WORST could be over for millions of home-owners after the Bank of England decided to keep rates on hold at 7.5 per cent yesterday, according to a growing consensus in the City.
UK rates now appear to have peaked with the next move in the cost of borrowing most likely to be down, according to economists.
The rate decision was welcomed by British industry. There had been fears that concerns about rises in pay levels could have prompted the Bank to raise rates for the sixth time since it was granted independence in May last year. But some industrialists warned the Bank's failure to cut rates had heightened the risks of recession.
Kate Barker, chief economic adviser at the Confederation of British Industry (CBI), the leading business lobby, said: "The decision to leave interest rates on hold will aggravate the problems faced by many exporting businesses struggling with an overvalued exchange rate. Our key concern is that it increases the risk of an unnecessarily sharp slowdown, which would also hit the service sector."
Concerns about plummeting business confidence recently prompted the CBI - for the first time in almost three years - to call for a cut in rates.
Dr Ian Peters, deputy director general of the British Chambers of Commerce (BCC), said the decision "plainly reflects the now abundant `real world' evidence that the economy is slowing sufficiently. But manufacturing remains dangerously close to the brink".
The Engineering Employers Federation added that the possibility of another rise had been left open, shoring up the pound and risking pushing manufacturing further into recession.
Francis Maude, the shadow chancellor, said: "Today's news on interest rates brings no comfort to home-owners and businesses."
The bank's monetary policy committee (MPC) came under heavy criticism from manufacturers following its decision in June to raise rates by 0.25 percentage points.
Members of the committee have being criticised for their lack of private sector experience, and Dr Peters yesterday reiterated his lack of confidence in the MPC.
"The Chancellor must now act swiftly to undertake a critical appraisal of both the composition of the committee and its conduct on monetary policy," he said.
The Government has been firm over its decision to allow the MPC to set interest rates, saying it is the only way to end the "boom and bust" economic cycle. One of the consequences is the damage being done to exports by the high pound, a cross-party committee of MPs has warned Gordon Brown, the Chancellor of the Exchequer.
Although exports to Japan had been resilient so far, British firms could not hope to cope forever with the present value of sterling, the Commons Trade and Industry Select Committee said.
The report's plea for ministers to "draw the necessary conclusions" may be seen as a plea to the Chancellor to persuade the Bank to lower interest rates.
Although there is now a growing feeling in the City that rates have now peaked, some experts remained wary, saying that the MPC had surprised the pundits before. Sharda Persaud, economist at Paribas, said: "The view here is that there's a 60 per cent chance rates will go up in September."
The stock market see-sawed after the announcement. The FTSE-100 recovered in the late afternoon to close 38.4 points down at 5594.1 points. There was some relief on the currency markets, with the pound slipping more than one pfennig against the German currency.
Sterling slides, page 16 Business Outlook, page 17
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