CBI renews call for rate cut

The Confederation of British Industry is today urging the Bank of England to follow the US Federal Reserve and cut interest rates as a defence against a slowdown in the global economy.

With the Bank's monetary policy committee set to take its monthly decision on Thursday, the employers' organisation called for a pre-emptive 0.25 percentage point cut in the cost of borrowing to 5.75%.

The CBI said it was the first time since June 1999 that it had lobbied for a rate cut, but that its move was justified by fears that the mood of unease could lead to a mothballing of investment plans. However, a majority of City analysts believe that the MPC is likely to leave borrowing costs on hold this week following recent mixed signals about the strength of the economy.

Nick Reilly, chairman of the CBI's economic affairs committee and managing director of Vauxhall Motors, said: "The CBI has been arguing for some time that the next move should be down.

"Now, after weighing the pros and cons, we believe the time is right for a quarter-point cut. There is a need to boost business confidence at a time of economic uncertainty when firms may be hesitating over investment plans.

"Taking pre-emptive action now would support the sectors most at risk from a global slowdown, especially manufacturing and tourism."

Rates have been left at 6% since February last year, although two members of the MPC, DeAnne Julius and Sushil Wadhwani, voted for a cut at the December meeting. The CBI said inflation had been below the government's 2.5% yardstick since April 1999, and that rates could be cut without putting the target in jeopardy.

Roger Bootle, economic adviser to services firm Deloitte and Touche, said that rates were likely to fall to 5% by the end of the year, but that an immediate cut seemed unlikely.