Bank urged to cut rates as services suffer
- By T C
- Published 11/5/2008
T C
Founder of Clearmoon Business Services
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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.
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• 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.
