Engineers join clamour for rate cut

THE ENGINEERING Employers Federation (EEF) yesterday joined calls for the Bank of England to cut interest rates this week, after its latest trends survey showed manufacturing industry slipping deeper into recession and job prospects worsening.

The regular monthly meeting of the Bank's Monetary Policy Committee starts later today.

According to the EEF, engineering output fell in the last three months of 1998 for the third consecutive quarter while export orders fell for the eighth consecutive quarter.

The survey also showed that companies had started to cut back sharply on both employment and capital investment in the face of deteriorating order books.

Graham MacKenzie, EEF director general, said: "Our survey shows that engineering remains in the grip of recession. With UK interest rates at more than twice the level of our European competitors and poor prospects for the rest of 1999, there is still a need for further cuts in rates at the earliest opportunity."

The EEF's call is expected to be reinforced by the Trades Union Congress, which will argue in a report due to be published tomorrow that rates need to fall from their current level of 6.25 per cent to around 4 per cent by the summer.

The TUC will maintain that it is safe to cut rates since neither wage increases nor import prices are fuelling inflation.

The calls came as official data showed that the volume of notes and coins in circulation rose by an unexpectedly large margin of 1.5 per cent in December, suggesting that the worst fears about spending on the high street in the run up to Christmas have not been realised.

The measure of money supply (M0) rose on an annualised basis from 4.8 per cent in November to 6 per cent last month.

The strong increase suggests that consumer demand remains relatively robust, giving support to those on the MPC who believe that having cut bases rates three times in successive months, the MPC should stay its hand, in spite of data elsewhere in the economy indicating that the UK may have slipped into recession in the final quarter of 1998.

Neil Parker, economist at the Royal Bank of Scotland, said that the surprisingly strong figure could be down to seasonal distortions and could well be discounted by the the MPC.