THE Bank of England Monetary Policy Committee raised its base rate by 0.25 per cent to 4.75 per cent yesterday. This was the first change for 11 months and the first increase for two years.
The decision was taken amid fears over growing inflation. The Consumer Price Index (CPI) went up by 2.5 per cent in June, up from the 2.2 per cent increase in May. The Retail Price Index (RPI) rose by 3.3 per cent, up from the three per cent rise in May.
The increase in the CPI is the largest since this form of measurement was introduced in 1997.
The decision by the Bank of England drove share prices down in London by one per cent and led to a sharp rise in the exchange rate of the pound against the dollar.
The leap in inflation is attributed largely to rising oil and energy costs, which have led to bigger gas and utility bills. House prices are continuing to spiral upwards and mortgage repayments are rising.
While retail sales are holding up, sustained by cheap credit, output by manufacturing industries is plummeting.
Raising interest rates will worsen this situation and the employers’ group, the Confederation of British Industry (CBI), said yesterday businesses would be disappointed by the move to increase rates.
The Engineering Employers Federation (EEF) criticised the decision to raise interest rates as premature. Martin Temple, the Director General of the EEF said: ‘The Bank has jumped the gun with today’s decision.’
Already the official unemployment rate is 5.4 per cent. This figure in May was the highest for six years. There were officially 1.65 million people classed as unemployed, an increase of 90,000 on the previous quarter.
In particular, the Office of National Statistics (ONS) reported that there were 112,000 fewer jobs between March and May this year compared with the same three-month period in 2005.
British capitalism is being battered by the world crisis at a time when the largest capitalist economy, the United States, is stagnating. The Goldman Sachs Confidence Index, published yesterday, revealed that business leaders are the most pessimistic for three years.
The imperialist wars against the peoples of the Middle East – in Afghanistan, Iraq, Palestine and Lebanon – that have provoked enormous resistance from the masses, are having a direct impact on the capitalist crisis. It is sending shudders through stock markets, driving oil prices up to more than $75 and gold has hit $655 an ounce.
In this situation, the move by the Bank of England is no cure for the crisis of British imperialism, the weakest of the major imperialist powers. This medicine may kill the patient.
Raising interests rates is another nail in the coffin of British manufacturing industries, driving up unemployment even more.
It threatens to burst the bubble of credit-fuelled speculation which has driven up property prices and maintained retail sales. Mortgage debts run into trillions and personal indebtedness is more than one trillion pounds.
Prime Minister Blair and the Labour government are engulfed in political crises as a result of huge opposition from the working class over the occupation of Afghanistan and Iraq, supporting Israel’s onslaught against Lebanon, and the drive to privatise and smash up the NHS, education and council housing.
The economic catastrophe that threatens to throw millions out of work, produce an epidemic of home repossessions and pauperise those with credit debts, will drive forward the revolutionary movement of millions of workers, youth and middle-class people. They are already up in arms against the Labour government.
To answer this threatening catastrophe of capitalism, the trade unions must organise mass strike action, culminating in a general strike, to bring down the Blair government.
It has to be replaced with a workers’ government that will withdraw all British troops from overseas, defend the Welfare State and carry out socialist policies.
The Workers Revolutionary Party is building a new leadership within the working class for this, to put an end to British imperialism. Join the WRP today!
