UK interest rate dilemma

 

The monetary policy committee of the Bank of England, the British central bank, will face a difficult decision today when it meets to fix interest rates. Official figures yesterday showed growth in manufacturing and services was not as weak as previous data suggested.

Expectations are divided over whether rates will be increased from 7.5 per cent, or left on hold. The official figures showed the manufacturing sector grew fractionally in the second quarter after falling in the previous two. Analysts expect this emergence from technical recession to be short-lived.

The Office for National Statistics said manufacturing output in the three months to June was 0.1 per cent up on the previous three months. It revised up its estimates of output in April and May. In June alone factory output was flat.

The National Institute of Economic and Social Research said there was not likely to be any "sharp revision" to the growth estimate. The NIESR's latest projection of growth in the three months to July is just 0.4 per cent. "The estimates confirm the view that the economy is growing at or just under 2 per cent per annum and do not indicate that a recession has started," the NIESR said.

Manufacturers have been increasingly vocal about interest rates, saying that the slowing economy has put many companies under pressure. But yesterday's figures may mean that the worst is yet to come for their sector.