The unspeakable case against a rate rise

Article Abstract:

There are good reasons for delaying a rise in United Kingdom interest rates when the Monetary Policy Committee of the Bank of England meets in Mar 1998. Gross domestic product (GDP) growth slowed in 4th qtr 1997, and manufacturing output has fallen. Rates could be raised and then lowered if the economy appearedto need lower rates, but this could cause problems. A reduction in rates would give the message that the economy is weakening, and this would send signals about demand as well as triggering a sell-off of pound sterling. Inaction could thus be the best course.

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Rate dilemma

Article Abstract:

The Bank of England has to make a decision on United Kingdom interest rates in Nov 1997. A drop in stock prices may lessen concern about inflationary pressure, but stock prices are still 10% higher than at the start of 1997. UK economic growth could slow because of the impact of a strong pound sterling on exports and a reduction in the budget deficit, but there is also concern about wage inflation and shortages of skilled workers. Rates may have to be raised by more at a later date if they are not raised in Nov 1997.

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