Retailers’ relief as BoE cuts interest
rates to 5.25 per cent

The motor retail sector had reason to cheer as the Bank of
England
‘s Monetary Policy Committee cut interest rates to 5.25
per cent, responding to a sharp fall in manufacturing output in
December 2007 and falling levels of consumer confidence.

Earlier this week, Sue
Robinson
, head of the Retail
Motor Industry Federation
‘s National
Franchised Dealers Association
, had called on the Bank of
England to reduce interest rates.

“January’s car sales dip masked growth in a number of niche
segments, but for sales to rise through 2008 interest rates must be
reduced,” Robinson said.

Reacting to the rate cut, she said: “By reducing the interest
rate to 5.25 per cent, The Bank of England is giving the economy a
chance to recover.

“The interest rate reduction will help to increase consumer
confidence, which should have a positive influence on the overall
economy,” Robinson added, pointing to the impact on consumer
spending of recent above-inflation rises in household costs.

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Choice of evils

The Bank of England had to balance its decision carefully, said
chief economist at stockbrokers Morgan Stanley, Edward Monachy.

“Many will find the current reductions in interest rates as
questionable given the pressure from inflation. Inevitably the
choice is between two evils: no cuts and a possible recession; cuts
and possible inflation.

“An economic slow down could result in higher unemployment and
threaten what is already a weak housing market with the possibility
of a US style housing collapse happening in the UK,” Monachy
said.