Sales on the UK's High Streets fell by a lower-than-expected 0.1% in October, figures from the Office for National Statistics have shown.

The decline was much less than the 0.9% drop that analysts had predicted after sales fell by 0.4% in September.

Retail sales grew at an annual rate of 1.9% compared with 1.7% in September.

Many retailers have opted to hold pre-Christmas sales in a bid to boost spending at what should be their busiest time of year.

Food sales rose 1% in October, but non-food sales fell 1.1%. Sales of household goods were down 1.5% and clothing sales fell 3.4%.

"The drop in non-food sales clearly suggests that discretionary spending is taking a hit," said Vicky Redwood at Capital Economics.

Discount day

Marks and Spencer is cutting prices in its clothing and homeware departments by 20% for one day only on Thursday, its first one-day sale for four years.

"The customer is not conditioned to expect M&S to do these things very often," retail analyst Fraser Ramzan, of Nomura, said.

Some M&S stores will stay open until midnight for the discount day.

But Mr Ramzan said there was a danger that shoppers would only buy reduced items that they would have bought anyway at full price, thereby cutting into, rather than boosting profits.

Other retailers, including Dorothy Perkins, Burtons, Debenhams, Selfridges and John Lewis, are also cutting prices for short periods of up to several days.

Retailers under pressure

Marks & Spencer saw like-for-like sales fall 6.1% in the 13 weeks to 27 September, while Arcadia Group, the owner of such retailers as Topshop, Dorothy Perkins and Burtons, experienced a 2.8% drop from 2007.

Woolworths has suffered particularly heavy losses and is reportedly in talks to sell its chain of more than 800 stores for a nominal price of one pound.

Paul McGowan, chief executive of restructuring specialist Hilco, said on Wednesday that talks with Woolworths were at a "very early stage".

In September, Woolworths reported a record first-half pre-tax loss of £90.8m.

Earlier this month, the Bank of England cut interest rates to 3% from 4.5% in the hope of putting more money in consumers' pockets and encouraging them to spend.

However, some analysts say that any positive effect - if it comes at all - will be too late to boost sales in the run-up to Christmas.

Rising unemployment has also dented consumer confidence.

BBC News

The government should consider lending directly to businesses and mortgages as banks fail to live up to promises to lend more, Nick Clegg has suggested.

The Lib Dem leader says the government has been "supine" and "weak" in not forcing banks to act, despite giving them billions of taxpayers' pounds.

Mr Clegg said these were "not normal times" and solvent businesses were being put at risk by lack of funding.

The Tories say they are looking into government guarantees for loans.

There was "growing public anger" and urgent action was needed, he added.

Mr Clegg says the government should lend directly to companies through the Post Office, local authorities or even by creating an entirely new bank.

The government has made its multi-billion pound bailout of three of the UK's largest banks conditional of them restoring the level of funds available to small businesses to 2007 levels.

But the Lib Dems say that despite this, lending rates are still low.

'Bad bank'

Mr Clegg told BBC Radio 4's Today: "There is growing anger that the banks aren't lending money. The government should put pressure on the banks and encourage them to lend. If they're not prepared to get tough with the banks we need a plan B.

"You could lend directly into the economy - it is a huge step, but if the government isn't prepared to lift a finger we need to do something and do something fast. We have to look at ways to get money back into the real economy."

Mr Clegg says a new bank could be set up to channel money to firms, but he admitted that would take some time.

Instead the government could look at "bashing" the effectively state-run Northern Rock and Bradford & Bingley Banks together, clearing high risk loans from their balance sheets and getting them to lend more.

He also said that some of the larger councils should be able to lend directly to the mortgage market.

There was also the possibility of setting up a special "bad bank" to take on the "toxic debts" of nationalised banks such as Northern Rock - which could eventually be sold on by the government when market conditions improve.

Cameron and Brown

"What we are saying is that there are a number of other ways that we need to explore of getting money back into the economy if the banks are refusing to do so," he told BBC Radio 4's Today programme.

"This is a complete departure from the kind of banking practices you would want to see in normal times, but these are not normal times."

The issue was raised by Mr Clegg at prime minister's questions - and by Conservative leader David Cameron who called for more direct measures to get lending to businesses restarted and the establishment of "new institutions" to underwrite lending.

A spokesman for the party said there was no proposal to set up a new government-backed bank like the one being considered by the Lib Dems - instead an arm of the Treasury would issue guarantees on loans given to businesses via existing banks. Those loans would be given at a "reasonable rate".

Gordon Brown said the government would take "all measures necessary" to get the banks lending again to small businesses, with proposals due "very, very soon indeed" to get the banks to "accept their responsibilities".

BBC News

Deflation - it sounds scary. And it could be.

It's a measure of how dramatically the outlook has changed that the D word is now being used extensively (even by the Prime Minister) just a couple of months after rising inflation appeared to be the main threat.

And let's not forget that, although it has fallen sharply, inflation is still at 4.5%, well above its 2% target.

Deflation means falling prices.

That does not have to be a problem if it lasts just a few months and no more.

Record declines

We have not seen the retail prices index (RPI) falling for a period of a year since 1960.

But there was no long term damage to the economy then, just something of a slowdown.

The Bank of England has predicted that inflation on the RPI (the wider measure which includes mortgage payments) will slip below zero sometime next year.

That is in part an arithmetical consequence of falling interest rates, as the RPI will to be pulled down by lower mortgage costs.

The Bank of England, however, targets the Consumer Prices Index (CPI), which it aims to keep at 2%.

According to the Bank, CPI inflation is expected to fall quickly from its current 4.5% level inflation to around 1% by sometime next year but will probably stay above zero.

Inflation nightmare

All this is a big worry for the Bank.

Their inflation nightmare has turned into a deflation headache, all in the space of a couple of months.

CPI inflation falling significantly below the target is as much a problem as it was when far above the target this year.

The target is symmetrical and the Bank is obliged to use interest rates to try to lower or raise inflation.

If the Bank was offered zero inflation for a while and growth picking up towards the end of next year it would take it now.

That would involve some pain to the economy but not as much as the gloomier forecasters envisage.

What policymakers are desperate to avoid is a sustained period of falling prices.

Japanese nightmare

The Japanese experience is often quoted as a case study of how governments and central banks should not behave in a downturn.

Falling property prices and corporate failures in the early 1990s were not matched with early government action. Fire sales of assets made an already weak market even worse.

When the government did implement tax cuts and spending increases, and the central bank slashed interest rates, it didn't make much difference.

By the time Japan's banks had cleared their balance sheets of bad loans and owned up to their losses, it was too late.

From 1999 deflation set in, with persistently falling prices. Interest rates fell to zero but the economy stagnated.

If prices are falling, buyers hold back in expectation of yet lower prices and a downward spiral is generated.

Japan did not see positive inflation again until 2006.

Avoiding Japan's "lost decade" is now the over-riding priority for the Treasury and the Bank of England.

That's why a fiscal boost involving tax cuts is being planned by Downing Street following the Bank of England's big interest rate cut.

Lessons learned in Japan include the need to act early and make bold policy moves.

The chance of the UK following the Japan experience is low.

But the fact that it is being discussed at high levels is a measure of the concern about the dangers of the D word.

BBC News

The government is to pump billions of pounds of taxpayers money into three UK banks in one of the UK's biggest nationalisations.

Royal Bank of Scotland (RBS), Lloyds TSB and HBOS will have a total of £37bn injected into them.

In return for the investment, the government will get a say in how the banks are run, including controls over the bonuses paid to management.

BBC business editor Robert Peston said the banks faced "absolute humiliation".

It would "count as perhaps the most extraordinary day in British banking history", he added.

'Extraordinary times'

Some financial experts have been highly critical of the government's strategy.

Professor Tim Congdon, a former Treasury adviser, told the BBC that the plan ignored shareholders' interests, and said it would ruin the City of London's position in world banking.

"The way the government is going about it, they are effectively stealing from the shareholders. The long-run result will be to destroy the competitiveness of Britain's most important industries," he said.

Under the plan RBS is to raise £20bn with a further £17bn to be put into HBOS and Lloyds TSB. Barclays intends to raise £6.5bn without government help.

Taxpayers will own about 60% of RBS and 40% of the merged Lloyds TSB and HBOS and executives at the three firms will see cash bonuses limited or forbidden.

Chancellor Alistair Darling told MPs that the rescue package contained: "essential steps in helping the people and businesses of this country and supporting the economy as a whole".

Prime Minister Gordon Brown said the bail-out was: "unprecedented but essential for all of us", and would thaw frozen money markets.

"In extraordinary times, with financial markets ceasing to work, the government cannot just leave people on their own to be buffeted about," he added.

'Surgical approach'

Mr Brown insisted the investments were assets and, "not just money being pumped in", adding the government intended to sell the investments at some point.

The measures needed to be accompanied by international banking system reforms, he added.

"We must now put in place new structures and new rules for the future. This cannot simply be a short-term rescue to paper over the cracks. Only a surgical approach that gets to the root of the problem will now work to ensure the problems do not return."

The Treasury cash forms part of the government rescue plan announced last week.

Management shake-up

As part of the banks' announcements:

RBS said chief executive Fred Goodwin was quitting with immediate effect - without a severance pay-off. He will be replaced by British Land boss Stephen Hester. RBS chairman Tom McKillop is to retire.
Lloyds and HBOS said they had renegotiated their merger, reducing the number of Lloyds TSB shares that HBOS shareholders will receive.
HBOS chief executive Andy Hornby and chairman Lord Dennis Stevenson said they would stand down from their posts after the merger with Lloyds TSB was complete. Neither will take any extra payments when they leave.
RBS and Lloyds TSB/HBOS will return mortgage and small-business lending to 2007 levels, which is much more than they are currently lending.

Other developments included:

Major central banks saying they would offer financial institutions an unlimited amount of short-term dollar loans to help stem the crisis.
London's FTSE 100 index surging 8.2% as investors reacted to the news, though banking shares were mixed.
As a condition of the deal, the government has insisted that senior directors should get no cash bonuses this year, with future bonuses to be paid in the form of shares - a move aimed at encouraging management to take a more long-term approach.

Dividend cancelled

The government will buy £5bn of preference shares in RBS and another £15bn of ordinary shares if, as many expect, the bank is unable to find willing private investors.

"It's immensely regretful we're coming to shareholders to raise funds again, it's something we feel bad about," said RBS chairman Sir Tom McKillop. "We cannot help but feel contrition."

HBOS will raise £11.5bn from taxpayers, made up of £8.5bn in ordinary shares and £3bn in preference shares, while Lloyds TSB is to get £5.5bn.

The money is conditional on the merger of the banks going through.

Lloyds TSB and HBOS said the deal was still on, but that the terms had been renegotiated.

A £12.2bn deal was agreed last month, but the value of HBOS shares has since plunged and the extent of the recapitalisation has highlighted its weakness.

Under the revised deal, HBOS shareholders will get 0.605 Lloyds TSB shares for every HBOS share they hold. Under the original deal they would have received 0.83 Lloyds TSB shares.

'No Rock'

Barclays has said it is to raise £6.5bn of new capital. The bank is to raise the money from private investors, rather than going to the government.

Barclays also said it would scrap its final dividend payout for 2008, saving it £2bn.

Our business editor said it was not wrong to describe the part-ownership of RBS, Lloyds TSB and HBOS as nationalisation, but the situation was very different from Northern Rock and Bradford and Bingley, which had seen private investors lose their holding.

"Shareholders will continue to own a big chunk of the banks," he said.

BBC News

UK consumers plan to spend 7% less this Christmas than they did last year, a survey from business advisory group Deloitte has suggested.

Deloitte warned this festive season may be "one of the toughest in decades" for retailers. The expected fall compares with a 7% rise in spending in 2007.

Yet while 24% of UK consumers intend to spend less this Christmas, the report said 57% planned to spend the same.

A further 19% of respondents said they expected to spend more.

A separate poll of parents found that many were planning to cut spending this Christmas, and that one in 10 feared a family's main bread winner would be made redundant within the next six months.

'Less socialising'

The total average amount spent per adult this year will be £655 on gifts, socialising, and food and drink, the Deloitte survey estimates.

While the overall amount spent is set to fall by 7% from last year, it is socialising where the biggest cutbacks are planned - 12% less than last year.

At the same time, more people plan to buy some of their Christmas gifts from supermarkets as they seek lower prices - 56% compared with 52% last year.

"I think the main headline is this is worst Christmas for a generation," said Richard Hyman, strategic advisor to the retail practice at Deloitte.

"But as a nation we'll be spending £36bn so it's not a total disaster.

"Broadly speaking, we believe sales will be flat this Christmas, with a slight fall possible."

Mr Hyman added that retailers will be hopeful that last week's interest rate cut will boost people's disposable incomes.

'Comfortable with debt'

Although only 19% of all adults plan to spend more this year, the percentage among 16 to 24-year-olds rises to 36%.

Perhaps disturbingly, 49% of this age group said they intended to have a good time at Christmas "and worry about the cost later".

"This age group has grown up in an affluent society with technology products and designer wear, are comfortable with debt, and have never been in a recession," said Tarlok Teji, Deloitte's head of retail.

"Their high propensity to spend represents an opportunity for those retailers targeting younger customers."

Deloitte's 14th annual Christmas Retail Survey spoke to 1,000 people across the country.

Job fears

A separate poll of more than 5,000 parents, published by the Family and Parenting Institute, found one in four said their household income was not enough to pay the bills each month.

Of these, 74% said they would be cutting their Christmas spending to save money.

"Even more of a strain is the pervasive fear that they will be out of work or even lose their home," said chief executive Mary MacLeod.

Some parents said that tax credits were easing the strain on their finances.

BBC News

David Cameron has unveiled plans to reduce National Insurance payments for firms which employ people who have been unemployed for more than three months.

The Tory leader said it would be funded from unemployment benefit savings and would be "fiscally responsible".

It comes as Gordon Brown signalled he backed unfunded tax cuts as a "fiscal stimulus" to get the economy moving.

Mr Cameron accused the prime minister of "splashing the cash as if there's no tomorrow".

Mr Brown responded by saying the Tory figures "do not add up".

The Liberal Democrats have already pledged tax cuts for low and middle income earners and accuse both Labour and the Conservatives of "timidity" when what was needed, they say, are big income tax cuts.

Outlining his policy Mr Cameron said it was "a mistake" to think the government could "borrow without limit" and he believed the government had rowed back on publicised plans for a Keynesian-style "spending splurge".

He believes the NI contributions plan would create 350,000 jobs and cut firms' tax burden by £2.6bn. In effect, the Tories say, companies would receive a proportion of the benefit payment in the form of a tax break.

The £2,500 NI credit would be paid in full for jobs of 30 hours a week or more or half that for part-time work of 16-30 hours.

It would be limited to a maximum of 20% of the workforce and would only be paid to those who had made no redundancies in the previous three, and subsequent three months.

Mr Cameron told a press conference the plans were a "budget submission" - which he hoped the government would implement now, as it was best done "at the beginning of a recession".

"One of the biggest worries for people right now is unemployment," he said.

"Instead of the government paying for them to be unemployed it can be paying for them to be in work."

'Fiscally responsible'

He said his plan was "fiscally responsible because the money is only spent if someone comes off the unemployment register ... The saving is made in the current year and the spending is in the current year."

But in his monthly press conference, Gordon Brown dismissed the plan as a "one-off initiative" when what was needed was "a serious policy for serious times".

And he added: "They can't show definitively how they can guarantee to pay for it."

"They change their policy every day, they have a new initiative to get them on the news, but it is not serious in measuring up to the problems we face."

He said a fiscal stimulus meant being "prepared to add to borrowing in conditions where you have low national debt" whereas funded tax cuts would not achieve the desired result: "That is not a fiscal stimulus."

But the Conservatives say extra borrowing now will mean higher taxes later.

Employment minister Tony McNulty was pressed on the issue on BBC 2's Daily Politics, and asked if taxes would have to go up after the next election to pay for borrowing.

He replied: "Over the longer term, that's the point, what do you do now in the short term to get over the difficulties that there are now and then how do you, very responsibly, get back to equilibrium over that longer term."

'Big' tax cuts

Shadow chancellor George Osborne told BBC Radio 4's World at One programme Mr McNulty had "let the cat out of the bag" and confirmed taxes would have to rise in the long term. He added: "Extra borrowing means higher taxes when you are trying to have a recovery."

There was a mixed response among businesses to the Tories' proposals. John Cridland, of the CBI, said they "would help some small businesses keep people in work" but the British Chambers of Commerce said firms were not in a position to start recruiting.

There were also some concerns that it might put firms off recruiting people who had only just lost their jobs.

Meanwhile the Liberal Democrat leader Nick Clegg has said that, under their income tax policies, people earning £30,000 a year would get £1,000 extra in their pocket.

The party is proposing significant tax cuts for people on low and middle incomes funded by closing tax loopholes for the wealthy, pension allowances for higher rate taxpayers and raising green taxes.

Mr Clegg said tax cuts had to be "big" to have any effect and accused Labour and the Conservatives of "tinkering and timidity" when what was needed was a dramatic lowering of basic rate income tax.

"What people need now, millions of ordinary British families who have been paying too much in tax for too long is a big tax break."

The Tory proposals come as a poll for the Times suggested their lead over Labour has fallen sharply in recent weeks - from 15 points a month ago to six points now.

BBC News

There has been a sharp rise in the number of people and companies being declared insolvent in England and Wales, government figures show.

Individual insolvencies went up by 8.8% in the third quarter of the year to reach 27,087.

Corporate liquidations also went up by 10.5% in the same period, to 4,001.

The increases have been widely predicted because of this year's sudden economic downturn and the consequent rise in unemployment.

The rising trend started this year as the economy stated to slowdown under the impact of the credit crunch.

Corporate

The number of firms being liquidated is now up by 26.3% on a year

"The dramatic increase in corporate insolvencies in Q3 2008 continues a trend that we believe will accelerate well into 2009 as companies are hit by the dual blows of a continuing credit squeeze and depressed demand," warned the accountancy firm Ernst & Young.

Many more corporate liquidations appear to be in the pipeline.

The number of receiverships, administrations and company voluntary arrangements, which are normally an attempt to rescue an insolvent business rather than shut it down, rose to 1,444.

That was 65% higher than a year ago, the government's Insolvency Service said.

"The increase over the year is fairly evenly spread among the different types of procedure," said Catherine Matthews, a partner at the insolvency firm Tomlinsons.

"But there is a definite trend towards procedures instigated by directors as they try to deal with their problems themselves," she said.

Personal

Among the individuals going insolvent, there were 17,341 bankruptcies and 9,746 individual voluntary arrangements (IVAs) in the last quarter - 4.6% more than there were twelve months ago.

Individual insolvencies had in fact fallen in the second quarter of this year, but are now rising again.

"For bankruptcy orders there has been a pronounced shift towards debtor's petition bankruptcies [people declaring themselves bankrupt] and away from creditor's petitions in recent years," said the Insolvency Service."

Catherine Matthews explained that this might be linked to the reduced length of time that people stay bankrupt.

"This is possibly due to the cut in the bankruptcy term to 12 months, and the general downturn in the property market which has undermined the only asset some people might have had."

A leading economic consultancy predicted that bankruptcies would continue to rise.

"With the full effects of the credit crunch and rising unemployment yet to be felt, bankruptcies are set to soar over the coming two or three years," said Capital Economics.

"We expect the number of personal insolvencies to rise from around 110,000 this year to around 140,000 in 2009 and even further thereafter."

BBC News

The main mortgage lenders have started to respond to the government's demand that they should cut their mortgage lending rates.

The Nationwide, HBOS, the RBS/NatWest group and nationalised Northern Rock will cut their main variable lending rates by the full 1.5% on 1 December.

Lloyds TSB and the Abbey announced similar steps on Thursday.

Prime Minister Gordon Brown had urged lenders to pass on the Bank of England's 1.5% cut in its Bank Rate.

The Bank of England's official rate was cut from 4.5% to 3% on Thursday.

The Libor rate at which banks lend to each other has also fallen since the cut.

See how the major lenders have reacted
In response the Nationwide is cutting its base mortgage rate by 1.5%, from 6.19% to 4.69%, while RBS/NatWest is cutting its standard variable rate (SVR) by the same amount, from from 6.69% to 5.19%.

The HBOS SVR is coming down from 6.50% to 5.00%.

The Nationwide, explaining its decision, said its borrowers would be "substantially better off".

"This is the right and fair course of action for Nationwide to take for all our borrowers at what is a very challenging time for everyone in the UK," said the society's chief executive Graham Beale.

Any changes to its savers' rates will be announced later.

Pressure

Prime Minister Gordon Brown welcomed the banks' decisions.

"Yesterday, we saw decisive action on interest rates from the Bank of England and the European Central Bank, and I welcome the fact that a number of British banks have now decided to pass on the interest rate cut to customers, to families and to businesses," he said.

The lenders had come under intense political and media pressure to pass on the Bank's decision to their customers as swiftly as possible, and in full.

Chancellor Alistair Darling held a breakfast meeting with bank bosses on Friday morning to press the government's case.

But the Council of Mortgage Lenders (CML) warned that the precise level of any reductions would be a commercial decision for each individual lender.

"The problem banks have got is that they have limited funds and don't have enough money to give to all the customers who may want them," Michael Coogan, director general of the CML told the BBC.

"I think over the next few days and weeks we will see that the banks and building societies will move by anywhere between 0.5% and 1.5% - the individual decisions will be on the basis of assessing what they want for their savers as much as what they want for their borrowers," he added.

Almost all tracker mortgages have been withdrawn for new borrowers as lenders consider at what rates to reintroduce them.

Lloyds TSB, which owns Cheltenham and Gloucester, has become the first to announce that it is to reduce the cost of fixed-rate deals for new borrowers.

Some deals for those offering a deposit of at least 25% will become 0.3 of a percentage point cheaper from Tuesday.

Duty

Lloyds TSB, HBOS and Royal Bank of Scotland, which owns NatWest, have taken government cash to strengthen their finances.

One problem, lenders say, is that the key to mortgage costs is not the Bank of England's base rate but Libor - the London Interbank Offered Rate - which is the rate at which banks lend to each other.

The three-month sterling Libor rate - which has the greatest influence on new tracker mortgages - fell from 5.56% to 4.49% on Friday, its lowest level since the end of 2005.

But the rate remains almost one and a half percentage points above the Bank of England's base rate - still well above pre-credit crunch levels.

A number of building societies have said they could take weeks to decide whether to pass on the cut. This would be to consider the effect on savers and to monitor Libor.

BBC News

It's firework season again and thankfully this year it’s not been as noisy as it usually is.

Frequently at this time of year it’s like a war zone round here, with fireworks banging and booming into the wee hours, terrifying all but the least nervous pets and filling the air with noxious fumes. Fortunately this year November 5th was the only evening with sustained noise, every other evening it’s just been the occasional explosion.

I think the Credit Crunch may be responsible for the reduction in firework activity this year, after all setting off fireworks is literally like burning money. I know they are pretty and make a nice display for a party, but you don't get much for your hard earned cash and they only last seconds, a crackle, a flash, a bang and they're gone! so, this year it seems that many people opted to attend a community firework display and saved their money for more important things.

The ongoing Credit Crisis is also the reason why so many people are deciding that now is the moment to stop smoking. Smoking is another way of burning money that people are finding they can't afford in this financial climate, and the fastest way to stop smoking, and also the most successful way by far, is hypnosis.

If you want to stop smoking and you choose to do so using hypnosis you can either visit a hypnotherapist who specialises in stopping smoking, or you can buy a hypnotherapy CD. The cost of a smoking cessation session with a properly qualified and experienced hypnotherapist will be in the region of £300 - £400, a CD costs much, much less and has the added advantage that it’s there for you to use again whenever you need to.

Success rates for both personal smoking cessation sessions and Hypnotherapy CDs are similar, as long as the CD is written and recorded by a fully qualified hypnotherapy professional.

With the costs and commitments of the Christmas holidays just round the corner, now is a perfect moment to make your decision to stop smoking, and enjoy your life with more money in your pocket.

The Bank of England was today asked to slash interest rates after a key part of the economy sank deeper into recession.

The call from City analysts came as activity in the services sector, accounting for nearly three quarters of output, fell for the sixth month in a row last month to its worst level on record.

Meanwhile, the British Retail Consortium (BRC) shop price deflator showed annual price rises slowed from 3.6% in September to 3% in October. Food prices retreated more sharply to 7.5% from 9.1% in September. The falls were greater than expected.

Both sets of figures were released hours before the Bank's monetary policy committee began its two-day meeting to set rates.

It is widely expected to cut rates from 4.5% to 4% when the meeting ends tomorrow, but hopes are rising it may go even further with an aggressive cut to 3.5%.

Howard Archer, chief UK economist at Global Insight, said: 'Given the very serious and ever-growing danger that the economy will suffer extended, deep recession, we believe that there is a compelling case for the Bank to get on with the job and deliver a full one percentage point cut from 4.5% to 3.5%.'

Such a cut should bring much-needed relief for borrowers struggling to keep up with mortgage payments - but only if banks and building societies pass on the lower rates.

Lenders this week warned there was no guarantee customers would feel the full benefit.

The country's top business groups have also called for aggressive cuts. Bosses including Marks & Spencer chairman Sir Stuart Rose and Top Shop chief Sir Philip Green added their voices yesterday to the chorus of demands for easier money.

The Confederation of British Industry, the Institute of Directors and the Royal Institution of Chartered Surveyors were among the organisations demanding a reduction to 3.5%.

The Bank rarely moves rates in steps of more than half a point, as part of Governor Mervyn King's attempts to keep monetary policy 'boring'. But leading bosses say that the continued credit drought means the Old Lady must throw caution aside. The Bank hasn't slashed rates by a full point since 1993.

• Newsflash service: Get the rates decision emailed to you

• The Chartered Institute of Purchasing and Supply said its barometer of activity in the services sector - which includes City stockbrokers, hotels and restaurants, and transport and computing firms - fell from 46 in September to 42.4 last month.

It was the lowest figure since records began in 1997 and the sixth consecutive month below the 50 cut-off point marking the difference between growth and decline.

Evening Standard and This is Money