Calls for UK rate cut set to fall on deaf ears

Calls from business leaders and homeowners for lower interest rates were set to fall on deaf ears today.

Economists expect the Bank of England to hold fire on cutting the cost of borrowing and freeze rates at 4.75% for the 11th month in a row, despite signs that the economy is coming under increasing strain.

Members of the Bank of England’s Monetary Policy Committee (MPC) are more likely to wait until August to act – the same month it issues its latest assessment of the UK economy in a quarterly inflation report.

If the MPC does cut rates it would be the first change in the cost of borrowing since August last year, and the first cut for two years.

Pressure for a rate cut gathered pace after official figures last week showed GDP growth of just 0.4% during the first three months of the year, while growth for previous quarters was also revised down.

At the same time economic data has continued to highlight the downturn in consumer spending, while figures from Nationwide Building Society showed house prices fell by 0.2% in June and annual price growth slowed to its lowest level for nine years.

CBI chief Sir Digby Jones added his voice to those lobbying for lower borrowing costs, with a warning that business investment is a lot weaker than official figures might suggest.

Retailers have also been under pressure while commodity prices remain high, and there were troubling signs of decline in the housing market, where confidence was everything, he said.

Sir Digby told an audience of business leaders in Merseyside this week: “As there still seems little risk of inflation, the time for action is now.”

Official data showing continuing weakness in UK manufacturing has added to the pressure for a rate cut, with economists saying the sector was on the brink of recession.

Manufacturing output declined by 0.9% in the first quarter and a recession will be confirmed if figures for June fail to show month-on-month growth of about 2.5% in the sector.

Retailers are also hoping a rate cut can restore confidence after figures from the British Retail Consortium showed like-for-like sales in June dropped by 0.5% after falling 2.4% in May.

The MPC has already surprised the City by disclosing that two members of its nine member group voted for an interest rate cut at its June meeting.