CBI joins the clamor calling for rate cuts |
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Tue, 26 Jul 2005 20:05
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The Confederation of British Industry has released the results of its quarterly industrial trends survey and the news as expected is not so good. Manufacturers are reeling from the recession-like atmosphere in the UK economy and have sunk to new depths of pessimism, which was stronger than three months ago. Based on these findings, the CBI has added its name to the already lengthy list of names calling for rate cuts by the Bank of England.
The CBI found that while 17 percent of the firms surveyed expressed renewed confidence, almost 33 percent said that their confidence levels were low, thus creating a negative balance for the fourth successive quarter. However, export orders have begun to gather pace even as domestic demand is in decline.
The CBI's chief economic adviser Ian McCafferty all these factors would surely affect the businesses in a negative way, "The decline in domestic orders and associated deterioration in pricing power and profitability is clearly affecting business confidence. These results reinforce the case for a cut in interest rates on August 4," he commented. It is widely expected that the BoE's Monetary Policy Committee would enforce a quarter point rate cut next month.
In fact, the economy is heavily dependant on these cuts. And since the consumer was anticipating them, domestic demand has fallen by 7 percent in the three months up to July, the CBI said. "While demand from abroad has helped manufacturing activity to hold up over the past three months, developments here in the UK have kept the sector under significant pressure," Mr. McCafferty confirmed. He added that firms have no great expectations from the next three months either, "These expectations are now at their lowest since July 2003," he said.
Howard Archer, chief UK economist at Global Insight was of the opinion that CBI's figures strongly recommend a rate cut, "High oil and metal prices, sterling's past overall strength, persistently subdued domestic demand in the eurozone, intense international competition and recently softer domestic demand in the UK have weighed down heavily on manufacturers," he observed.
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