Business groups urge interest rate cut

The Bank of England: Buoyant consumer spending does not indicate an economic slowdown

Two of the UK's most prestigious business organisations have urged the Bank of England to cut interest rates.

The British Chambers of Commerce (BCC) on Monday added its voice to that of the Confederation of British Industry (CBI) in calling for a reduction in interest rates of 0.25%.

Both organisations said such a move would boost business confidence at a time of uncertainty.

But City analysts, while not ruling out the possibility of a cut, thought it unlikely.

The Bank of England's monetary policy committee is on Wednesday due to start its first monthly meeting since interest rates were unexpectedly cut in the US.

UK interest rates have been held unchanged at 6% since last February.

Hesitation over investments

The CBI's economic affairs committee chairman Nick Reilly said the organisation had for some time argued that the next move in interest rates should be down.

"Now, after carefully weighing the pros and cons, we believe the time is right for a quarter-point cut," he said in a statement.

"There is a need to boost business confidence at a time of economic uncertainty when firms may be hesitating over investment plans.

"Taking pre-emptive action now would support the sectors most at risk from a global slowdown, especially manufacturing and tourism."

BCC deputy director general Ian Peters said a cut "would send a clear message to business and the markets that [the Bank] is ready to forestall the knock-on effects of a global slowdown on the UK economy."

Inflation less of a risk

Mr Reilly said it was clear that rising inflation was now less of a risk for the UK economy and the Bank could afford to trim rates without endangering its inflation target.

Unions have also urged similar action, saying it would help protect jobs in manufacturing.

"Last year was a very bad year for UK manufacturing, and all the signs suggest 2001 may prove no better," Trades Union Congress general secretary John Monks said.

"A cut in interest rates [this] week would give manufacturing its first positive news in months."

Stronger evidence needed

But City analysts polled by news organisations were not expecting any change in rates. Only one of 26 analysts surveyed by Bloomberg predicted a cut while those questioned by Reuters said there was a 70% chance rates would be left unaltered.

Speaking before the Federal Reserve cut US rates, the Bank of England's deputy governor Mervyn King said the UK would not necessarily follow any US move because UK consumer spending remained buoyant.

This implied the Bank was still of the view that inflation remained a bigger threat to the economy than any slowdown in growth.

Analysts said that while the Bank was likely to follow the US lead before long, it would probably wait until stronger evidence of stalling growth emerged.