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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."





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