CBI calls for interest rate cut

The Confederation of British Industry today called on the Bank of England to cut interest rates next month as it reported a further deterioration in confidence among manufacturers.

In its quarterly survey on industrial trends, the CBI said manufacturing firms were more pessimistic about the general business situation than three months ago.

Thirty-three per cent of firms said they were less confident while 17% said they were more confident, a balance of minus 16%. It was the fourth successive quarter to see a deterioration in confidence, the CBI said.

Domestic demand weakened further but this was partly offset by an unexpected pick-up in export orders, the survey said.

"The decline in domestic orders and associated deterioration in pricing power and profitability is clearly affecting business confidence," said Ian McCafferty, the CBI's chief economic adviser. "These results reinforce the case for a cut in interest rates on August 4."

The City widely expects the Bank of England's monetary policy committee to lower borrowing costs by 25 basis points to 4.50% next month. Earlier this month, four of the MPC's five members voted for an immediate cut amid worries about the speed of the consumer slowdown.

Last week, the Office for National Statistics (ONS) reported that the manufacturing sector had moved into recession in the May-June quarter. The ONS said manufacturing output shrank by 0.7% in the second quarter, following a 0.9% fall in the previous three months.

The worry for economic policymakers is that there is little impetus for growth from the services and manufacturing sectors as consumer spending slows. Today's survey made it clear that manufacturing is not about to pick up the slack.

"Looking ahead, firms have scaled back their expectations for orders in the next three months, and these expectations are now at their lowest since July 2003," the CBI said.