Refusal to cut rates angers industry

The Bank of England spurned calls from both sides of industry for a cut in interest rates yesterday, deciding the domestic economy was safe - for now - from the impact of slowing global growth.

Shrugging off pressure to follow the US Federal Reserve's lead and make the cost of credit cheaper, the nine-member monetary policy committee voted to leave policy unchanged at 6% for the 11th month in a row.

The decision had been widely expected in the City following recent statistics showing the economy continuing to grow steadily.

But trade union and business leaders criticised the MPC for missing an opportunity to take out some insurance against a global slowdown hitting jobs and investment in Britain.

Kate Barker, chief economic adviser at the Confederation of British Industry, said: "Many businesses will see this as a missed opportunity to make a pre-emptive strike that would have eased concern about the impact of a global economic slowdown. There is a real need to maintain confidence and encourage firms hesitating over investment plans."

John Monks, the TUC's general secretary, agreed: "This is very disappointing. This is no time for caution. With little or no inflationary threat, the US cut provided an ideal opportunity to lower rates here. Not only would it have been good for confidence but it would have helped the exchange rate realignment that has already brought some relief to hard-pressed manufacturing exporters."

The government's benchmark measure of inflation, excluding mortgage interest payments, is below the 2.5% target, giving the MPC ample room to manoeuvre if Britain suffers a US-style collapse in business and consumer confidence.

But, with consumer spending remaining stubbornly high, government spending rising and a Budget due within the next few months, analysts believe that the MPC is unlikely to be in a hurry to stimulate demand. Even so, they predict that the cost of borrowing will fall to 5.5% by the middle of the year to offset the effect of the global slowdown.

Michael Saunders, economist at Schroders Salomon Smith Barney, said: "In our view, the decision to leave rates on hold is consistent with the MPC's pre-emptive stance seen over the last few years."

He said the strength of recent business surveys, consumer confidence, retail sales and the housing market gave little reason to ease policy yet.

Roger Bootle of the consultancy Capital Economics believes the MPC will want to see the contents of Gordon Brown's Budget, expected on March 6, before cutting rates.