Europe South Asia Asia Pacific Americas Middle East Africa BBC Homepage World Service Education

Front Page



UK Politics







Talking Point
On Air
Low Graphics

Thursday, December 10, 1998 Published at 12:40 GMT

Business: The Economy

Christmas interest rate cheer

The Bank of England has cut UK interest rates by 0.5 percentage points to 6.25% at its last meeting of the year.

The BBC's Ed Crooks: "People have been scared to spend"
The cut is the third in as many months and comes as fears continue to mount about the outlook for the economy and the possibility of further job losses.

Three of Britain's leading mortgage lenders, Halifax, Abbey National and Nationwide, immediately followed suit and cut their mortgage rates by 0.5%.

The Bank said it acted because the prospect for global economic activity had weakened and commodity prices had fallen further.

Ruth Lea of the Institute of Directors: Rates must come down still further
At 6.25%, the UK's base lending rate is still more than double that of most of its European competitors.

The 11 countries joining up to the euro all cut their interest rates last week to 3%, in a surprise co-ordinated move.

Only Italy remains marginally higher.

The high rate in the UK has been blamed for thousands of job losses in the manufacturing sector.

Move welcomed

The move was widely welcomed by business and unions.

[ image: Bank of England Governor Eddie George chairs the committee]
Bank of England Governor Eddie George chairs the committee
British Chambers of Commerce deputy director general Dr Ian Peters said the "bold decision will go far to restore business confidence in the Monetary Policy Committee.

"A cut of at least a half per cent was essential to boost flagging consumer demand before the Christmas period, and also to help encourage sterling on its downward path."

Kate Barker, chief economist at the CBI, welcomed the move but warned: "With economic weakness now spreading out well beyond manufacturing, this cut is unlikely to be the last and will not in itself ward off the impending downturn in growth."

BBC Consumer Affairs Correspondent Denise Mahoney reports from Liverpool
Tim Wilson, chief economist at Newton Fund Managers said the cut was "welcome news to the UK's beleaguered manufacturing sector".

John Monks, general secretary of the Trades Union Congress, said the MPC had given industry "an early Christmas present", but UK interest rates were still higher than across the euro zone and more cuts would be necessary next year.

However, John Edmonds, general secretary of the GMB, said it was a "pathetic" response to manufacturers' problems and the MPC should "come into the real world."

There was a muted reaction from financial markets, as the move had been widely expected.

London's index of leading shares, the FTSE 100, was up 35 points a few minutes after the decision was announced.

Outlook gloomy

There are fears that with consumer and business confidence plunging, the UK economic slowdown has now become unstoppable.

[ image: Retailers are having a tough time]
Retailers are having a tough time
Figures out this week showed the extent that manufacturers were suffering from the economic downturn.

Output in the three months to October fell by 0.7% compared to the previous period, according to the Office for National Statistics. It was the heaviest three month fall since early 1995.

An economist at the Royal Bank of Scotland said: "The figures show us how bad things are for manufacturers and to sum up - they are awful."

Retailers suffering

Latest figures from the shops also paint a gloomy picture.

Data compiled by the British Retail Consortium show UK retailers had another bad month in November, prompting fears that they will be left with billions of pounds of unsold Christmas stock.

High Street sales slumped for the second month in a row and the BRC said retailers were facing a "white knuckle ride" in the run up to Christmas.

Director General of the British Retail Consortium, Ann Robinson, said: "There has been no discernible effect yet from last month's cut in interest rates. A further cut may be required to encourage shoppers to start spending."

Advanced options | Search tips

Back to top | BBC News Home | BBC Homepage | ©

The Economy Contents

Relevant Stories

10 Dec 98 | The Economy
UK bosses pessimistic about the economy

10 Dec 98 | The Company File
Royal Doulton cuts 1,000 UK jobs

27 Nov 98 | The Economy
Pressure mounts for interest rate cut

08 Oct 98 | The Economy
UK interest rates cut by 0.25%

08 Oct 98 | The Economy
The ultimate City slickers

07 Oct 98 | The Economy
Workers demand interest rate cut

Internet Links

Bank of England



The BBC is not responsible for the content of external internet sites.

In this section

Inquiry into energy provider loyalty

Brown considers IMF job

Chinese imports boost US trade gap

No longer Liffe as we know it

The growing threat of internet fraud

House passes US budget

Online share dealing triples

Rate fears as sales soar

Brown's bulging war-chest

Oil reaches nine-year high

UK unemployment falls again

Trade talks deadlocked

US inflation still subdued

Insolvent firms to get breathing space

Bank considered bigger rate rise

UK pay rising 'too fast'

Utilities face tough regulation

CBI's new chief named

US stocks hit highs after rate rise

US Fed raises rates

UK inflation creeps up

Row over the national shopping basket

Military airspace to be cut

TUC warns against following US

World growth accelerates

Union merger put in doubt

Japan's tentative economic recovery

EU fraud costs millions

CBI choice 'could wreck industrial relations'

WTO hails China deal

US business eyes Chinese market

Red tape task force

Websites and widgets

Guru predicts web surge

Malaysia's economy: The Sinatra Principle

Shell secures Iranian oil deal

Irish boom draws the Welsh

China deal to boost economy

US dream scenario continues

Japan's billion dollar spending spree