UK NEWS

BANK BEGINS INTEREST RATE TALKS

Tuesday January 8,2008

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The Bank of England's policymakers are due to begin their two-day meeting on interest rates amid growing calls for a second successive cut in borrowing costs.

Retailers smarting from their worst Christmas in three years have urged the Bank's nine-strong Monetary Policy Committee (MPC) to act to ease pressure on consumers hit by higher mortgage bills after a series of rate hikes last year.

But despite the British Retail Consortium's call for a 0.5% cut to 5%, most experts have predicted the MPC will hold rates at 5.5% on Thursday in a close-run decision.

The committee is charged with keeping inflation at 2% but it is currently running above target - 2.1% - thanks to oil prices soaring to 100 dollars a barrel, as well as rising food costs.

With rising energy bills also in prospect following Npower's move to hike prices last week, inflationary pressure remains despite signs of a slowing housing market, tougher conditions on the high street and slackening business growth.

Global Insight's chief UK economist Howard Archer said Thursday's decision was "on a knife-edge".

He said: "If forced to come down on one side of the fence, we would marginally favour the view that the MPC will delay until February given ongoing inflation risks."

But he added: "We certainly would not be shocked if the MPC did cut rates on Thursday as there is a genuine case for further pre-emptive action to try to minimise the risk of a sharp economic slowdown over the coming months."

The BRC's latest retail survey showing like-for-like sales growth of just 0.3% in December follows profit warnings from retailers such as Currys' owner DSG International and predictions of high street gloom from fashion chain Next.