Unemployment is on the rise, manufacturing output is in decline, consumer spending is low and retail is suffering in the run up to Christmas – traditionally the busiest part of the year. Yet the Bank of England has decided to keep interest rates at 4.5%.
David Frost, Director General of the British Chambers of Commerce (BCC), hoped that the Monetary Policy Committee (MPC) would have taken the bold decision to counter the worsening economic circumstances and the sharp slowdown in the pace of economic activity and reduced interest rates.
David Frost said on hearing the decision, "UK GDP quarterly growth was preliminary estimated at 0.4% in Q3 2005, the fifth successive quarter of below-trend growth. Year-on-year Q3 growth was 1.6%, approximately a full percentage point below the economy's trend growth, and the lowest annual rate of expansion since 1992. Manufacturing output was in technical recession in the first half of 2005, after falling in both Q1 and Q2. More recently, manufacturing output recorded monthly declines in both August and September. The claimant count measure of unemployment has risen in each of the last eight months, and is more than 61,000 higher than in January 2005. House prices have decelerated sharply, and this will dampen spending.
“While we appreciate that the MPC faces serious uncertainties, waiting too long before taking corrective action also entails major risks. The economic situation has worsened considerably, and business confidence is weak. It is therefore critically important that the MPC should maintain a flexible approach, and should stand ready to counter the sharp slowdown in the pace of economic activity.”
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