MPC leaves rates on hold

The Bank of England yesterday turned a deaf ear to cries for help from the ailing manufacturing sector and left Britain's interest rates on hold for the 12th consecutive month.

The Bank and the European Central Bank shrugged off pressure to copy the Fed's 0.5 percentage point move and fixed rates for the 12th month - at 4% in the UK, and 3.25% in the eurozone.

Unions and industry groups reacted furiously after Britain's nine-member monetary policy committee ignored the precedent set in the US, where the Federal Reserve slashed rates on Wednesday.

"The Federal Reserve has shown the need for decisive action at this time, and the UK has failed to follow," said Dougie Peedle, deputy chief economist at the Engineering Employers Federation. "While the bank must not take risks with the economy, companies will find it hard to understand the reluctance to reduce rates further when overall growth in the economy is modest, and there is no threat to inflation."

John Monks, the general secretary of the TUC, described the decision to leave the rate unchanged as "risky and unnecessary", adding: "Manufacturing is now more vulnerable to job losses and factory closures. The bank has more than delivered the inflation target. Now it must reassure us that it takes the chancellor's remit on growth and jobs seriously."

Hopes of a cut in rates had been mounting after minutes from the MPC's last monthly meeting revealed three members voted for a pre-emptive reduction to protect the UK against the global slowdown.

With surging property prices underpinning consumer spending, analysts said the MPC was wary of giving households more reason to hit the shops. "Today's decision may have reflected an unwillingness to prompt the consumer into taking on even more debt at a time of falling wealth and slowing income growth," said Martin Essex, of Capital Economics.

With the slower than expected recovery in the US, one of the arguments in favour of lowering borrowing costs, the MPC may also have felt that the sharp cut in US rates gave them room to manoeuvre.

The Confederation of British Industry's chief economist, Ian McCafferty, warned the bank to "stand ready to act decisively" if lower rates in the US fail to have the intended effect.

"If the half-point cut from the Fed does not stimulate the US economy, there is risk of a coordinated global slowdown into next year. Under these circumstances, a quarter-point cut in the UK would not be sufficient and the MPC should be ready to make a more radical half-point reduction."

The ECB's decision to leave rates on hold in the face of sluggish growth across the eurozone caused consternation. "It's a very disappointing result because it just shows that economic parochialism has prevailed," said David Brown, chief european economist at Bear Stearns.

Wim Duisenberg, the ECB's president, said there had been an "extensive" discussion of whether to go for a cut, but shifted the responsibility for economic recovery onto member governments. "It is not monetary policy that can give an incentive to employment in this case and economic growth, at least not in the short term," he told a Frankfurt press conference.

The German government reported unemployment up by 22,000 in October, to 4.1 m.