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West Midland businesses have taken
this month's quarter point rise in base rate in their stride,
according to Sir Andrew Large, a deputy governor of the Bank of
England.
Speaking halfway through a twoday
tour of the West Midlands, Sir Andrew, who is responsible for
financial stability issues, said the rise from 3.5 per cent to 3.75
per cent, had barely been discussed during his visits to local
companies.
"I think that everybody
basically understands that the reason why we did it was to maintain
our plans to meet the inflation target set for us by the
Chancellor," he told The Birmingham Post last night.
His itinerary yesterday included a
lunch with Birmingham-based professionals at which, he said, "I
heard quite a bit of optimism".
Sir Andrew went on to say that he
had found his visit to companies such as Unipart Eberpacher, a
Coventry-based automotive components manufacturer, and Frederick
Woolley, a Birmingham pressings company, "very encouraging".
"It has been quite a
difficult time, particularly for the manufacturing industry, over the
last few years and it was very encouraging to hear some optimism from
people looking forward to the future," he added.
The rise in base rate was the
first imposed by the Bank of England's Monetary Policy Committee since
February 2000 (when it went up from
5.75 per cent to six per cent) and
it was the first time that Sir Andrew voted for an increase.
He said in a speech last week that
the committee would be closely watching the reaction of consumers.
A sudden slump in spending by
households acting to pay down huge debt levels could trigger economic
problems and force the committee to reconsider the rise.
But Sir Andrew said last night it
was too early to say what if any effect there had been on high street
spending.
Sir Andrew said the key to future
base rate movements would be the extent to which any change in
consumer spending impacts on the economy as a whole and the
commit-tee's ability to meet the Government's inflation targets.
From a financial stability point
of view, the financial services industry "feels comfortable"
with current levels of secured debt, partly because rising house
prices have given borrowers higher levels of equity.
But the committee was watching
unsecured borrowings closely, Sir Andrew said.
The deputy governor said the
strength of the UK's financial system meant the country was well
placed to withstand a major upheaval such as that which followed the
September 11 terrorist attacks on the US after which the New York
stock market and banks suffered severe disruption.
Plans were in place to ensure
continuity of business and the main impact of such a major catastrophe
in London would be on the banks' ability to maintain liquidity in
order for financial transactions to be completed rather on particular
institutions.
Looking ahead to 2004, Sir Andrew
said: "The projection we have made in our forecasts shows that
the economy is likely to grow slightly above its normal trend level of
about 2.5 per cent.
"I think the outlook for the
economy is reasonably optimistic and that is reflected in what I have
heard on my visit to Birmingham."
Sir Andrew's programme today
includes a visit to Caribbean food company Cleone Foods in Hockley,
whose managing director Wade Lyn is a local adviser to the Bank of
England.
Source:
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