Bank under pressure to cut rates

The Bank Of England was today urged by both sides of industry to cut interest rates to give the economy a much-needed boost.

The Trades Union Congress, Confederation of British Industry and the British Chambers of Commerce all called on the Bank's Monetary Policy Committee to introduce a 0.5% cut when it was announcing its decision today.

CBI director general Digby Jones said there would never be a stronger case for a 0.5% cut, while TUC general secretary John Monks said: "It is time to throw a lifeline to our exporters with a bigger cut in interest rates, giving us an economic shot in the arm and insulating us from the threat of global recession."

Mr Monks said the rate cut should be followed by a "pre-budget for jobs" from the Chancellor later this month.

The comments follow a double dose of bad news from Britain's manufacturing and service industries on Monday, which raised hopes of a half-point cut.

The prospects of a rate cut were also boosted by the Federal Reserve's move earlier in the week to revive the economy following the September 11 attacks and cut half a point from rates in America.

But despite the calls for a half-point cut, most economists are forecasting the Bank of England will shave rates by just 25 basis points as the situation domestically is relatively strong compared with the US.

Simon Rubinsohn, chief economist at broker Gerrard, estimated there was a 60% chance UK rates would fall by 0.25%, a 30% chance of a half-point cut and a 10% chance of a hold decision.

Michael Taylor, economist at Merrill Lynch, said he was forecasting a quarter point cut from the Bank in order to keep the domestic economy growing sufficiently to avoid recession.

"We are very confident we will stave off recession but there are signs of a domestic slowdown," he added.

And Nathan Kemp, economist at Bank of America, also said he was forecasting a 25 basis point cut.

A cut today from the Bank would mark its seventh rate reduction this year. Rates are currently at their lowest point for 37 years.

A quarter or half point move would mean rates continue to be at their lowest since January 1964, when they were at 4% before being hiked up to 5% in February 1964.

Mortgage bank Halifax said a quarter-point cut this week would take ?8.91 off a ?60,000 repayment mortgage, assuming it passes on the full cut to its borrowers.

The UK rate cut will be followed by a decision by the European Central Bank, which is also forecast to cut by 25 points to 3.5%.