Bank under pressure to cut interest rates

The Bank of England was today under pressure to lower interest rates to a 47-year low after the US central bank took dramatic measures and cut its rates last night.

Fearing a renewed slump in economic confidence, the Federal Reserve Board (Fed) cut interest rates by half a point to 1.25%, giving credence to hopes that the cost of borrowing could also fall in the UK.

The Bank's monetary policy committee (MPC) began its own rate-setting meeting on Wednesday, and is due to announce the result at noon today. Many City analysts now believe the MPC will abandon its own year-long "wait and see" approach and reduce the cost of borrowing to a 47-year low of 3.75%.

Pressure on the UK manufacturing sector and the risk of inflation running at below target had already fuelled the possibility of a cut before last night's dramatic decision by the Fed.

Industry leaders have also reiterated calls for the MPC to act after figures showed a surprise fall in manufacturing output earlier this week.

TUC general secretary John Monks said: "The case for a cut is now overwhelming. The Bank should recognise the very real dangers to growth and be brave."

Only fears that lower borrowing costs will give fresh impetus to the house price boom appear to stand in the way of action by the MPC. But Philip Shaw, chief economist at Investec Bank, said there was every chance that the MPC would now follow the Fed's lead. "The UK economy is subject to the same global economic forces as the US. If the reasons for a cut are global, then they will also apply to the MPC," he said.

Growing world tensions played a role in the Fed's decision to cut rates by more than the expected quarter of a point. A spokesperson said: "Incoming economic data has tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is
currently inhibiting spending, production and employment."