Bank of England set to cut rates

Manufacturers are set for a boost with the Bank of England expected to cut interest rates for the first time in a year.

Economists are tipping the Bank's Monetary Policy Committee (MPC) to shave a quarter point from the base rate on Thursday.

A cut to 5.75% will cheer industry leaders but also show the Bank is worried about the impact of the slowdown on the UK economy.

The MPC has kept interest rates at 6% since last February, although it has come close to a reduction last month, voting by the narrowest of margins for a hold.

Jeremy Batstone, head of research at NatWest Stockbrokers, said: "The vast majority of forecasts expect a quarter point cut, particularly in view of what happened last time."

Even though economic indicators suggest a cut is not needed, he says the committee may act now because of the political calendar, with a budget and possible election campaign on the horizon.

"They might feel slightly stymied over the next three months because of circumstances beyond their control. The MPC is not supposed to take these matters on board but it may decide to buy some insurance in case economic conditions do deteriorate later on."

Mr Batstone says the economy is remaining in good shape, despite woes in the US, where the Federal Reserve has cut interest rates by half a point.

"The economy continues to stride along untroubled by what is going on in the US. Europe is a more important trading partner than the US."

However, the Engineering Employers Federation (EEF) says action is needed to head off a possible downturn in manufacturing. Stephen Radley, chief economist, believes even a quarter point cut in rates will make a significant difference to the cost of making investment.

He added: "In the last month we have seen a much clearer picture of a slowing UK economy and the deteriorating conditions in the US. A cut in rates now would boost business confidence, encourage vital investment and potentially kickstart the euro's rally against the pound."