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HOT PRESS! Bank rates reduced…. European rates remain unchanged

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The Bank of England Monetary Policy Committee has just announced that it is reducing interest rates by 0.25% to 5%

Reactions and further news to be added as they arrive

See last weeks HR Briefing editorial

European Central Bank
PRESS RELEASE
Monetary policy decisions
2 August 2001

At today's meeting, which was held in the form of a teleconference, the Governing Council of the ECB decided that the minimum bid rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.50%, 5.50% and 3.50% respectively.

The MPC Announcement

News Release –
Bank of England Reduces Interest Rates by 0.25% to 5.0%

The Bank of England's Monetary Policy Committee today voted to reduce the Bank's repo rate by 0.25% to 5.0%.
The Committee reviewed monetary and economic developments in the context of the projections to be published in the August Inflation Report. Indicators of world economic activity have been weaker than expected over the past few months. This and the persistent strength of sterling are adding to the pressures on the externally exposed sectors of the UK economy, and at the same time there are signs of weakening investment growth. By contrast, retail spending, household borrowing and the housing market are still robust, partly supported by recent reductions in interest rates. On balance, the outlook, although highly uncertain, is for aggregate demand and output growth to be weaker than previously projected.

Although RPIX inflation has picked up in recent months, that partly reflects erratic factors, and underlying price and cost pressures are expected to remain subdued. Monetary policy needs to balance the weaker external environment by sustaining domestic demand growth.

The Committee decided to reduce interest rates by 0.25% in order to keep inflation on track to meet the 2½% inflation target in the medium term. The Committee's latest inflation and output projections will appear in the Inflation Report to be published on Wednesday 8 August.

The minutes of the meeting will be published at 9.30am on Wednesday 15 August.

CBI welcomes rate cut

The cut in interest rates was applauded by the CBI today (Thursday) because it will help stave off the effects of the world economic downtown.

CBI Deputy Director-General John Cridland said: "Even though consumer spending remains robust, the cut was justified because of the impact of the global slowdown. This is driving pressures on manufacturing that are significant enough on their own to justify the reduction.

"Because the inflationary outlook remains benign, there was no need to wait for a slowdown in consumer spending. Indeed, further rate cuts will be needed, should the slowdown spread to the consumer sector."

Institute of Directors

Ruth Lea, chief of the Institute of Director's policy unit, is reported as saying the cut should not risk igniting inflationary pressures.

But she says it remains questionable just how much help it will provide for a manufacturing sector "beset by weakening international markets and the strong pound/weak euro".

Ms Lea says inflation remains benign despite "signs of life" in the economy, including firm consumer spending, robust housing market and a tight labour market.

Engineering Employers Federation

Stephen Radley, the EEF's chief economist, said "We applaud the bold and decisive action taken by the MPC, which will be widely welcomed by manufacturing.

"This is the right response to ensure the global slowdown avoids damaging the UK economy any further and the MPC must remain vigilant to the need for further cuts, if necessary."

British Chambers of Commerce

Reacting to the Bank of England's decision today (Thursday) to cut interest rates to 5.00 per cent, Ian Fletcher, Chief Economist at the British Chambers of Commerce said:

"This is fantastic news and will help cushion the UK impact of the global slowdown. The Bank of England has sent a clear signal that it is not prepared to allow the global slowdown strike any deeper into our domestic economy.

“With global recession not yet off the agenda, this pre-emptive quarter point cut will help boost business confidence and provide some relief to our hard-pressed manufacturers.

“To ensure growth remains on track, the Bank should remain vigilant to the risks threatening the UK economy and be ready to cut rates further if conditions worsen.”

The British Chambers’ most recent analysis of UK business performance, covering over 8000 UK businesses showed UK firms suffered their worst period of economic activity for over two years last quarter, with recession closing in on manufacturing and the service sector losing its grip on growth.

TUC reaction

Brendan Barber, deputy general secretary, of the Trades Union Congress, says: "Today's decision, in line with the TUC's recommendation, is a very wise move. Despite talk of a two-speed economy, the Bank has taken the threat to manufacturing seriously.

"Government should now support this move by increasing assistance for regional industrial development. They are in a position to smooth out the regional inequalities Britain is suffering, but they will need to commit extra resources if they are to make a significant impact."

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