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Thursday, May 6, 1999 Published at 12:29 GMT 13:29 UK

Business: The Economy

Interest rates frozen

UK interest rates are to stay at 5.25% despite calls from manufacturers to lower them.

BBC Economics Correspondent Ed Crooks reports on reaction inside and outside the City
It is only the second time in the past eight months the Bank of England's Monetary Policy Committee has pegged the level of rates.

Last month, it trimmed interest rates by 0.25% to their present level.

The decision was hardly a shock as a majority of economists had been predicting no change.

But John Monks, TUC general secretary, argued for more cuts, saying "now is not the time for caution."

Promising signs

On making its decision the Bank's committee referred to "encouraging signs of recovery".

[ image: British manufacturing has been crying out for more rate cuts]
British manufacturing has been crying out for more rate cuts
Although this hold on the interest rates is disappointing news for British manufacuring, which had lobbied for a cut, the Bank says it expects sterling to weaken from its 'present high level'.

It goes on: "If sterling were not to weaken as assumed, there might....need to be further easing of interest rates in order to keep inflation on track to meet the 2.5% target."

The pound has been rising since January, and is now worth nearly 3 Deutschmarks, close to the level at which the UK left the ERM in 1992.

The high pound is a boost for the travel industry, which says that more Britons are booking holidays abroad than ever before.

Service sector joy

The BBC's Chris Giles: Manufacturers and the unions greeted the news with dismay
UK manufacuturing is struggling to export with the pound riding high on international currency markets.

A raft of positive economic figures have been published in recent weeks, none more so that the Chartered Institute of Purchasing and Supply's April survey.

It showed service sector activity was growing at its fastest rate since last June.

[ image: Bank of England governor Eddie George: Committee member who helps set the rate]
Bank of England governor Eddie George: Committee member who helps set the rate
According to the CIPS survey financial services companies grew the fastest, buoyed by lower interest rates, a more buoyant housing market and the replacement of Peps and Tessas with the new Isa savings schemes.

Nevertheless not everyone was happy.Engineering Employers' Federation director general Martin Temple said:

"In the absence of further cuts in rates, the UK will increasingly move towards an imbalanced economy with a manufacturing sector penalised by a strong currency."

Dr Ian Peters, Deputy Director-General of the British Chambers of Commerce (BCC) said: "This is a missed opportunity. The Bank is dithering while business struggles to build on a fragile recovery.

"With inflationary pressures flat and exporters still suffering from a stubbornly high pound, a further cut in interest rates was both workable and necessary."

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