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Last Updated: Thursday, 4 August 2005, 05:34 GMT 06:34 UK
Bank tipped to cut UK base rates
Bank of England
It's the 100th time the Bank has met to decide rates
The Bank of England's Monetary Policy Committee is expected to cut interest rates by a quarter point to 4.5% at its 100th rate-setting meeting later.

Most economists believe the Bank will cut rates, as UK growth and consumer spending worries accompany a manufacturing sector in recession.

But a series of rapid cuts appear unlikely, analysts say, given the risk of re-igniting inflationary pressures.

UK base rates have been left on hold at 4.75% since August 2004.

A rate cut may be positive news for UK manufacturing and mortgage holders, however, it will be less welcome news for those who have contributed to a recent mini-boom in cash savings.

Already one high-profile savings account run by ING has cut its interest rate from 5% to 4.75% ahead of the decision.


Consumer price inflation (CPI) hit 2% - the Treasury's target - in June and the Bank of England will be wary of pushing it any higher.

The argument for a 'wait and see' approach is fading fast
Sir Digby Jones, CBI director general

The Bank is also keen to keep a lid on consumer debt and does not want to undo its efforts to control an overheated housing market.

"We see this more as a fine-tuning of monetary policy and not the beginning of an easing cycle," said Tamara Henderson of Action Economics.

"In fact the base rate could well be put back to 4.75% as soon as February."

Sagging economy

The main catalyst driving the Bank's rate-setting Monetary Policy Committee (MPC) towards a rate cut is economic growth, or lack of it.

The UK economy has grown below trend for four successive quarters - its worst performance in more than a decade.

A slowdown on the High Street has put the brakes on growth, with year-on-year growth in the second quarter at 1.7% - its weakest rate since the first three months of 1993 - and well short of Chancellor Gordon Brown's target of 3%-3.5% growth this year.

Calls from business leaders for a rate cut have intensified as figures showed manufacturing officially in recession.

Manufacturing output contracted by 0.7% in the second quarter - following a 0.9% fall in the previous three months.

Unions have said they are seeing an increasing number of UK companies "struggling to stay afloat, closing or calling in the administrators".

"Manufacturing needs assistance from the Bank," said national organiser of the T&G union, Peter Booth.

And manufacturers' organisation EEF has also called for a cut.

"The Bank has been right to ignore premature calls for a cut in rates which might not have been sustained," said EEF director general, Martin Temple.

"However, on balance we believe it should move now to shore up business and consumer confidence at a time of growing uncertainty."

'Timely cut'

Meanwhile, the UK's retailers are also suffering, with many major High Street names having reported falling sales this year.

On Tuesday, CBI director general Sir Digby Jones urged the Bank of England to move quickly on interest rates.

"As the risk of inflation remains low, a timely cut in interest rates by the Monetary Policy Committee (MPC) on Thursday is essential to maintain growth and consumer confidence," he said.

"The argument for a 'wait and see' approach is fading fast. It is time for the Bank of England to get off the fence."

Historic meeting

The MPC took responsibility for the base rate eight years ago and celebrates its 100th meeting this week.

Sale signs
Shops have been feeling the pinch

Chancellor Gordon Brown gave the Bank responsibility for setting and controlling rates shortly after the current Labour government came to power.

Interest rates have been left unchanged 69 times, increased on 14 occasions and cut 16 times during that period.

There have been 98 regular monthly meetings of the MPC and one extraordinary meeting called in the wake of the September 11 attacks in North America.

Current Bank of England governor Mervyn King has been at the helm since 2003 and is the only member to have attended every meeting

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