Social partners call for interest rates to be cut
In summer 1998, the failure of the Bank of England to cut interest rates has caused major concern to both employers and trade unions, and a June-July 1998 survey from the CBI employers' organisation shows that manufacturing business confidence is at its lowest level for seven years.
Amidst widespead concern among the social partners during summer 1998 about the high level of interest rates, the main concern of Gordon Brown, the Chancellor of the Exchequer, in the economic field appears to remain the level of wage inflation, which he considers far too high. In a recent speech, Mr Brown gave a warning to employers and trade unions when he pointed out that theBank of England's mandate to meet the Government's 2.5% inflation target overrode all other economic concerns: "In the new system the inflation target will be met. It can either be met by people paying themselves responsible wage settlements or it can be met by higher interest rates."
Export orders dropped at the fastest rate for 12 years, leading to the sharpest fall in business confidence since January 1991, according to the latest Confederation of British Industry (CBI) Quarterly industrial trends survey. The survey, which was carried out between 25 June and 15 July 1998, shows that 51% of firms surveyed are less optimistic than before about the general business situation. Domestic orders are reported to have fallen by a negative balance of 15% of firms, the worst figure since January 1993. The survey involved 1,013 firms in some 50 industries, accounting for around half of the UK's manufacturing exports and some 2 million employees.
Andrew Buxton, chair of the CBI's economic affairs committee, said: "UK manufacturers are clearly running into considerable difficulties. The decline in domestic demand, coupled with the further fall in export orders is now leading to cuts in plans for output, investment and employment. The broader economic picture is less weak, but points to a cooling of growth." The CBI has therefore decided to call for a cut in interest rates of 0.25%.
Other factors highlighted by the survey are that:
- output has fallen for the first time in over five years, the sharpest decline since early 1993;
- plant and machinery investment intentions are at their weakest since July 1991;
- demand shortage has risen further as an output constraint, reaching its highest level since January last year;
- employment in manufacturing fell markedly over the past four months and is expected to fall further at the sharpest rate for two years; and
- capacity utilisation has fallen to its lowest level since April 1994.
The Manufacturing, Science, Finance (MSF) trade union, which organises skilled and professional people, welcomed the CBI's call for a drop in the interest rate. General secretary Roger Lyons said that "the survey shows quite clearly that the UK manufacturing sector faces serious difficulties." August 1998 saw the announcement of massive job losses throughout the manufacturing sector, at Siemens, Grove Europe, Rover, BOC and Royal Ordnance to name but a few. The Trades Union Congress (TUC), arguing that the Chancellor has exaggerated inflationary fears, commented: "we urgently need a cut in interest rates or at the very least a clear signal that they have peaked. Otherwise there is a very real danger of a hard landing for the economy."