Two-speed UK economy causes MPC headache

Figures out this week are likely to show manufacturing industry tumbling into further distress, exacerbating fears of a two-speed economy as mortgage lending and retail sales surge on.

This will cause a headache for the Bank of England's Monetary Policy Committee when it meets on Wednesday and Thursday. But it is set to ignore pleas for a cut in interest rates as June's data shows surging domestic demand, making inflation more of a worry than growth.

A key quarterly report by the Engineering Employers' Federation on Tuesday is expected to show the bleakest picture of British manufacturing for some time. Even engineering and electronics, which have bucked the trend so far, are expected to feel the chill of the US slowdown. Tomorrow's Purchasing Managers' Index is expected to reinforce the message.

Employers' organisations, such as the Confederation of British Industry, admit that the increasingly unbalanced UK economy makes for a difficult decision. But City economists think it 80 per cent likely that benchmark rates will stay at 5.25 per cent.

• Britain will be the fastest-growing of the world's six major economies this year, says a report from the Centre for Economics and Business Research. Growth of 2.4 per cent will make the UK 'the fastest horse in a slow race'.