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Thursday, 9 November, 2000, 07:50 GMT
BoE expected to hold rates
Bank of England governor Sir Eddie George
Sir Eddie George: Tax cut warning
The Bank of England's Monetary Policy Committee is meeting to consider whether to adjust interest rates in the wake of the chancellor's pre-Budget report.

It will announce its decision at 1200 GMT.

The chancellor announced major concessions to pensioners and fuel protesters, worth about 4.8bn in total, in his statement in the House of Commons on Wednesday afternoon.

But the concessions were broadly balanced by a projected increase in tax revenues of the same amount, leaving the overall budget surplus unchanged.

That should be enough to persuade the bank to keep its key interest rate steady at 6%, as it has since February, but some economists believe rates might still need to go up later.

On Tuesday, Bank governor Sir Eddie George warned Mr Brown against giving away too much of the growing budget surplus in tax cuts, and said such a move "would not help" the MPC keep inflation in check.

Budget surplus

"I am surprised by the many billions of pounds that some commentators have suggested the chancellor could safely give away," Sir Eddie told the CBI conference in Birmingham.

The Bank is a worried that the spending plans already announced by the government - which will increase spending by 3.3% annually from April 2001 - could be inflationary if the economy does not cool.

But the chancellor is under pressure to make further concessions as the projections for his budget surplus soar - with many commentators suggesting that he will have a surplus of 15bn in this financial year ending in April, 10bn more than originally estimated.

However, Mr Brown is reluctant to lose his reputation for prudence by spending too much of that surplus now - leaving little room for manoeuvre if his economic projections turn out to be wrong.

In his pre-Budget statement, he estimated the surplus for the current year at 10bn - still 5bn lower than most independent estimates.

Economy cooling

There have been increasing signs that the economy has been cooling down, which will increase the likelihood of the Bank keeping rates on hold.

The rate of growth of the whole UK economy slowed to 0.7% (2.8% annually) in the third quarter of the year, compared with 0.9% (3.6% annually) in the previous three months.

However, that figure may have been distorted by the fuel protests, which reduced business activity in September.

Another factor is sterling. Its high level against the euro has helped keep inflation in check by keeping the price of imported goods down.

But the Bank still believes that the pound is over-valued, and fears that a sudden collapse in its value could boost inflation.

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See also:

08 Nov 00 | UK Politics
Protesters, OAPs wait on Brown
02 Nov 00 | Pre budget report
Scope for splurging
06 Nov 00 | Business
Brown: I won't squander prosperity
18 Oct 00 | Business
Bank of England shifts rate stance
05 Oct 00 | Business
UK interest rates unchanged
07 Nov 00 | Business
Bank chief warns against tax cuts
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