Bank puts interest rates on hold

The Bank of England was coming under pressure from industry and unions last night for post-election cuts in interest rates after the eve of polling day meeting of its monetary policy committee left rates on hold at 5.25%.

Britain's increasingly troubled manufacturing sector accepted yesterday's safety-first outcome, but representatives said the nine-strong MPC would need to address the concerns of exporters in the months to come.

Stephen Radley, chief economist at the Engineering Employers' Federation, said: "Although we understand the decision, those sectors of manufacturing on the brink of recession will be looking for further cuts in the near future should conditions continue to deteriorate."

The EEF's quarterly survey of 1,500 firms will be published early next month, but a spokesman said that the evidence from the returns already received was of a "significant downturn taking place, particularly from an international perspective."

Even those sectors, such as electronics, which had previously been coping with the strength of sterling, were now being hit by the deterioration in global economic conditions, he said.

TUC senior economist Ian Brinkley said: "This is a disappointing decision. British manufacturing badly needs a cut in rates to restore confidence. The Bank is taking an unnecessary risk when the global economic outlook is so uncertain."

The reasons for the Bank's decision will not be revealed for a fortnight, although recent public pronoucements have expressed concern about the growing imbalance between the weakness of those sectors vulnerable to overseas competition and the strength of the sheltered domestic economy.

Most analysts believe that the MPC left rates on hold in the light of evidence that this year's three previous reductions in borrowing costs have boosted consumer spending and the housing market.

John Cridland, the CBI's deputy director-general, said: "We understand the decision, but a further cut over the summer still looks highly desirable. It would help cushion the UK against the combined impact of a weak euro, a slowing global economy and foot-and-mouth disease."

David Sears, deputy director general of the British Chambers of Commerce, said: "Amid a murky economic outlook, the best option was to hold rates steady this month. However, business, and in particular an increasingly sickly manufacturing sector, will expect rates to come down further in the coming months."

Simon Rubinsohn, chief economist at stockbroker Gerrard, said: "There was never really any doubt that the authorities would choose to leave policy on hold at this week's meeting. Retail spending, in particular, appears to be accelerating, the housing market is still buoyant and the trend in unemployment remains downward."