Interest rates on hold again

Jane Padgham12 April 2012

CLOUDS hovering over the global economy darkened today as the Bank of England froze interest rates for the ninth successive month.

Following yesterday's disastrous US gross domestic product figures, a key barometer of America's manufacturing industry showed a fresh slump in activity. The headline index from the Institute for Supply Management registered 50.5 in July from 56.2 in June.

Meanwhile, France's statistics office Insee said consumer confidence dived in July, erasing gains made in the previous two months.

In Germany, the Ifo institute became the latest think-tank to cut its growth forecasts for the eurozone's biggest economy. It expects the economy to expand by a feeble 0.7% this year rather than the 0.9% previously pencilled in. Growth is expected to accelerate to 2.3% next year.

'The economic focus is quickly shifting back to doubts about the sustainability of global demand,' said economist John Butler at HSBC.

The grim news came as the Bank of England's monetary policy committee, chaired by Governor Sir Edward George, left the cost of borrowing at a 38-year low of 4%. Praising the decision, John Cridland, deputy director-general at the CBI said: 'The right thing to do was nothing. 'The no-change decision was announced just hours after it emerged that Britain's manufacturing recovery has also stalled, leaving the City speculating that the next rates move could be down.

The latest report from the Chartered Institute of Purchasing and Supply revealed the first manufacturing contraction for six months due to a sharp drop in orders. The survey's headline purchasing managers' index registered

48.9 in July, down from 50.6 in June and below the crucial 'boom-bust' 50 level.

'Having reported a peak in the rate of growth of new orders in April, panellists have indicated a marked decline in the pace of growth since then, culminating in outright contraction in July,' it said.

But a reduction in interest rates to shore up investor and business confidence was prevented by news that the housing market continues to boom. Nationwide revealed that property prices shot up by 2.5% in July, pushing the annual rate of increase to a staggering 21%, the highest since 1989.

Sterling fell by more than a cent today to $1.5515 and 63.30p against the euro. The European Central Bank held its main repo rate at 3.25%.

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