Chorus for rate cut; CBI says it is opportune to do so |
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Wed, 06 Jul 2005 14:05
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LONDON: The Monetary Policy Committee of the Bank of England, meeting here today to take stock of the country's economy, is facing seeming pressure from Britain's senior business leaders to review and cut the interest rates to bring in a semblance of order in the confusing scenario.
Taking the lead for the harried business and industry is Sir Digby Jones, director-general of Confederation of British Industry. He is slated to address a meeting in Merseyside ahead of the MPC meeting, where he is going to tell the audience, mainly business and industry representatives, that the figures available with CBI shows the worst year-on-year retail sales decline in 22 years. This, as well as the growing concern over weak profits and the possible weakening of the housing sector, call for an immediate rate cut, says Sir Digby.
His remarks at the meeting were released to the media Tuesday. Says he: "Such a loss of confidence is something the U.K. economy cannot afford. As there still seems little risk of inflation, the time for action is now."
The CBI represents 200,000 companies in the country. It is concerned about the strength of corporate profitability as the National Statistics figures released yesterday indicated that the net rate of return for manufacturers in the first quarter went down to 6 per cent from 7.7 per cent in the previous quarter, although the rate for service companies rose to 17.5 per cent from 15.9 per cent.
"The loss of momentum since spring 2004 is totally consistent with a structural decline in company profits,'' said Sir Digby. A rate cut would be "a prudent and timely response".
Similar views have been expressed by Asda's chief executive Andy Bond, George Wimpey's chief executive Peter Johnson and director-general of British Retail Consortium Kevin Hawkins. Hawkins has been forthright in saying, "What is needed now is a series of rate reductions. Some very good, well-run businesses like Asda are now finding things very difficult and are having to cut jobs."
Policy watchers feel the MPC is bound to announce a rate cut and the decision may come in as early as Thursday. It will be the first in the last two years.
The MPC has been holding out the view that the downturn, especially in the retail sector, could be a temporary phase and the economy can revive on its own without a rate cut. However, there have been dissenting voices in the central bank.
The central bank is expected to come out with its decision on the rate cut Thursday. The bank had raised the rates five times between November 2003 and August 2004. The current rate is 4.75 per cent.
Government statistics indicated that the growth in the U.K. had fallen behind that of the Euro region for the first time in more than four years during the first quarter of 2005 basically as a result of lowered consumer spending. Even the manufacturing sector too has not been performing well. Inflation rate for May has been at the seven-year high of 1.9 per cent.
Meanwhile, the European Central Bank has also been urged to cut its rates to help British exporters. The ECB would want to keep the eurozone interest rates on hold this week, but pressure, especially political, is mounting on it.
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