BCC calls on Bank to hold off on rate rises

Britain's long-suffering manufacturing sector is "stuck in the slow lane", as services firms accelerate towards recovery, the British Chambers of Commerce warned yesterday.

Presenting its quarterly economic survey of more than 7,000 companies, the BCC urged the Bank of England to avoid exacerbating the crisis in manufacturing by putting up borrowing costs. "It is clear that UK businesses continue to operate in a difficult and hazardous economic climate," said David Frost, the BCC's director general. "Given the underlying uncertainties, the monetary policy committee must not raise interest rates prematurely."

After a hawkish speech by Bank of England governor Mervyn King raised fears that rates could go up as early as next month, David Kern, the BCC's economic adviser, said that view was not supported by evidence. "There's nothing in the economy which suggests that we need an interest rate rise," he said.

Manufacturing appeared to have staged a recovery in the second quarter of the year, according to official GDP figures - but the BCC yesterday described the upturn as a "blip", which had evaporated in the past three months as both home sales and exports deteriorated. In marked contrast, home sales in the healthier services sector picked up to their strongest level since the last three months of 2002, and investment and employment plans also improved. "Our major concern is that we've got quite clearly a two-speed economy, and the gap is widening," Mr Frost said.

As well as calling on the Bank to hold off raising interest rates, Mr Frost said Gordon Brown should prioritise supporting the manufacturing sector in his December pre-budget report, and avoid loading extra costs on to industry.

"Manufacturing is the bedrock of our industrial performance. Efforts to increase the productivity and competitiveness of UK manufacturing must therefore be at the forefront of the national economic agenda and particularly for the chancellor in his pre-budget report."

There was some cause for hope in yesterday's survey, with manufacturers more confident about future output than at any time since 1999, and feeling more positive about their profitability than three months earlier. But the BCC warned that any optimism would soon "fizzle out" if it was not matched by reality.