Industry concern about interest rate rise

Responding to the MPC interest rate decision in January – the rise to 5.25% – Jane Lodge, UK manufacturing industry leader for Deloitte, said: “This news will come as a disappointment to manufacturers. Despite positive growth in 2006, signs of tougher times ahead were already appearing before this rise. Rising interest rates and the pound at its strongest in over two years will create cause for concern across the industry.” And Roger Bootle, economic adviser to Deloitte, added that the surprise decision to raise interest rates may not prove to be the peak in interest rates. TUC head of economics Adam Lent said that the decision: “smacks of panic rather than considered judgement. The MPC itself has said that it expects inflation to fall in 2007 as the effects of higher energy prices fade. There is not enough evidence to justify an increase in rates, which will be damaging for industry." And EEF, the manufacturers' organisation, strongly criticised the increase, which it believes risks bringing the economy to a sharper slowdown than is necessary. In particular, EEF believes the Bank is wrong to increase rates without firmer evidence of the christmas trading pattern and the January pay round. Questions also remain as to the extent of the effect on the UK of any slowdown in the United States. EEF director general, Martin Temple, said: "We are surprised and disappointed by today’s decision which is premature and risks bringing the economy to a sharper halt than is necessary. The Bank is in danger of damaging its hard won reputation for stability should this rise have to be quickly reversed."