Bosses beg: Leave rates on hold

Business leaders warned the Bank of England this weekend against responding to rocketing energy bills with a snap rise in interest rates on Thursday.

With inflation well above the Bank's 2 per cent target, City analysts say the nine-member Monetary Policy Committee faces its toughest decision for many months. 'It's a difficult one for the MPC,' said George Buckley, chief UK economist at Deutsche Bank. 'I think they'll stay on hold, but it's a very, very close-run thing.'

Economists polled by Reuters said there was a 30 per cent chance of a hike.But Martin Temple, director general of the Engineering Employers Federation, urged the Bank's governor, Mervyn King, to hold off. 'Given energy prices going through the roof, and political and economic uncertainty overseas, now would be the wrong moment to add a rise in interest rates into the cocktail,' he said. 'The last thing business wants is to see an increase now which has to be reversed later in the year.'

Official figures show the economy expanded strongly by 0.8 per cent in the second quarter, and retail spending is holding up; but Kevin Hawkins of the British Retail Consortium said the figures should not be taken for granted. 'The figures may look good but that doesn't mean we're seeing the start of another consumer boom. Energy prices have gone up, everything's costing the consumer more, and I think they're going to remain cautious,' he said.

David Kern, economic adviser to the British Chambers of Commerce, agreed. 'We think at the moment the correct policy is to wait - there are many uncertainties,' he said, arguing that soaring energy bills are more likely to depress consumer spending than lead to an inflationary spiral of higher wages and prices. 'It's the sort of inflation that squeezes household incomes,' he said.

With the Nationwide House Price Index this week expected to show further evidence of an easing in the property market after a mini-boom in the spring, some analysts warned that a rate rise could hit over-borrowed home-buyers hard. 'I think the market's far more vulnerable than is generally assumed,' said Ed Stansfield, property analyst at Capital Economics. 'A quarter-point increase wouldn't be very tangible in the sense of personal finances, but it's a mood shift, and I think people would be taken aback by it.'