Governor of the Bank of England Eddie George` this week washed his hands of responsibility for manufacturers’ woes and warned he would not risk destabilising the economy as a whole to weaken sterling.
Speaking at the British Chambers of Commerce annual conference in London, George laid the blame for exporters’ difficulties on the weak euro rather than the strength of the pound, and said there was little the Monetary Policy Committee could do about it.
While he accepted the exchange rate was causing exporters pain, he argued that lowering interest rates would stimulate domestic demand. This would lead to faster inflation, which might provide some relief in the short term, but would eventually need to be brought under control through a more abrupt tightening of policy.
`That frankly would not do the suffering sectors themselves much good, at least for very long, and it would have a potentially destabilising effect on the economy as a whole,’ he said.
Reaction to the governor’s speech was mixed. Chris Humphries, British Chambers of Commerce director general, said that Chancellor Gordon Brown should take the blame for the strength of sterling, rather than the Bank of England. He said Brown had missed an opportunity to reverse the direction of the pound in his Budget, by not introducing measures to dampen demand.
Roger Lyons, general secretary of the MSF, said the MPC had been too tough in undershooting its inflation targets every month for the last 11 months, which was costing jobs in industry.
`We’re not saying we don’t welcome stability, but stability in the midst of an erosion of the manufacturing industry is not particularly helpful,’ he said.