Bank of England mulls rate cut

Bank of England chiefs are set to reveal whether they will follow the US lead and cut interest rates again, and help stem the economic turbulence sparked by last month's terror attacks.

The Bank's Monetary Policy Committee will at 1100 GMT on Thursday reveal whether it will introduce a further cut in rates, already at their lowest level since 1964.

With the global economy faltering in the aftermath of the terrorist strikes, the bank has in recent weeks come under pressure to match rate reductions implemented in other leading industrial states.

Since the attacks, the MPC has introduced a cut of only quarter point, introduced one day later than reductions ordered by other major central banks.

The US central bank, the Federal Reserve, on Tuesday implemented its second 0.5 percentage point rate cut since the atrocities, taking rates to 2.5%.

Complex picture

MPC members, who began their deliberations on Wednesday, are faced with a series of often contradictory reports on the health of the UK economy.

UK manufacturers are weathering recession, while the service sector is still relatively strong.

A survey published on Wednesday, however, said that the UK service sector has contracted for the first time in two and half years.

A report from the Halifax found that house prices stalled last month, in a slowdown set to last throughout the winter, a forecast which will reduce pressure on the MPC to maintain rates.

Fears of a housing boom, and a rise in wages as employers struggled to fill vacancies in times of low unemployment, have been among the major factors which have dissuaded the bank from cutting rates further.

Nonetheless, inflation is relatively high, rising 0.4% to 2.6% in August, above the Bank's 2.5% target.

High inflation points towards interest rates rises.

Two consumer confidence reports last week came to contradictory conclusions, with one finding sentiment had slumped to its lowest level since 1980 and the other that optimism had remained largely unaffected by the terrorist attacks.

Political points?

The interest rate picture has been further clouded by a report showing that, before the attacks, some MPC members had been keen to raise rates.

Some City analysts have also speculated that the MPC might be tempted to score political points by maintaining rates, and reinforcing the UK's independence from the US.

Tom Hougaard, analyst at City bookmakers Financial Spreads, said the MPC had been "quite obstinate" in the past.

"They do not want to be seen to be playing second fiddle to the Fed," he said.

But hopes of a cut helped support shares in early trade on Thursday, with the FTSE 100 index of leading stocks standing up 90 points at 4,972 shortly after 0730 GMT.