CBI and TUC appeal for steady interest rate

Industry leaders and trade unionists today call on the Bank of England to keep rates steady, saying that the economy is slowing down fast enough to keep inflation at the government's 2.5% target.

Their plea to maintain rates at 6% for the sixth month in a row came as new figures showed a modest recovery for high street retailers last month, after a bad performance in June.

The Confederation of British Industry reported that 47% of the retailers it polled reported higher sales last month, while 23% reported falls, giving a positive balance of 24% - an improvement on the balance of 15% recorded in June.

Underlying growth is slowing down, according to the three month on three month average, which smooths out erratic monthly movements. Kate Barker, the CBI's chief economic adviser, said: "The latest survey strengthens our view that the MPC should leave interest rates on hold."

The Trades Union Congress said the Bank's monetary policy committee should consider the fragile state of the manufacturing sector.

"Manufacturers trying hard to stay afloat will be keen for interest rates to stay the same for another month," said Brendan Barber, TUC deputy general secretary.

The majority of economists - 25 out of 33 polled by Reuters last week - see rates staying on hold when the decision is announced at midday today.

Analysts said the recovery in July sales was no surprise after the dip in the June figures.

"After the near euphoria of May and the gloom of June, we have a near normal survey," said Geoffrey Dicks, UK econ omist at the Royal Bank of Scotland. "This does not stop the CBI from making its ritual request for unchanged rates. What they ignore is that price stability or even deflation, is needed on the high street to offset higher inflation in the services sector if we are to keep overall inflation at target."

Some analysts said yesterday's figures suggested the slowdown was not yet sharp enough.

Michael Saunders of Schroders Salomon Smith Barney said: "Consumer spending is not slowing enough. We are still looking for a hike. At some point they'll have to raise rates." He added however that this did not necessarily need to take place this month.

Since the MPC last met, official figures showing a sharp increase in growth in the second quarter have strengthened the case of those on the MPC calling for another rate rise.

However, wage inflation has eased and the housing market appears to have slowed down, which will boost the case for MPC members, who believe inflation is already under control.