CBI urges rate cut after weak sales

The Confederation of British Industry today called on the Bank of England to cut interest rates as retail sales remained weak in July.

According to the CBI's monthly distributive trades survey, which covers the retail sector, 29% of retailers in July reported sales volumes up on the year but 47% said they were down.

The balance of -18 last month followed a balance of -19 in June, the lowest since the survey began in July 1983. The underlying sales balance in the three months to July was down to -15, also a record low.

Retailers have not seen an increase in annual sales since the end of 2004, the CBI said, probably a reflection of the continuing anxiety over the housing market, interest rates and tax increases.

But the CBI said retailers appeared to have been largely unaffected by the terrorist attacks in London on July 7. The impact of the second, failed attack will only be evident in the CBI's August survey.

Sir Digby Jones, the CBI's director general, said a cut in interest rates on Thursday was essential to maintain growth and consumer confidence.

"The argument for a 'wait and see' approach is fading fast. It is time for the Bank of England to get off the fence," Sir Digby said.

City analysts say a cut on Thursday is a foregone conclusion and the question now is whether the Bank will lower borrowing costs again after this week.

Howard Archer, economist with the consultancy Global Insight, predicted a further cut after Thursday.

"The continuing weakness in retail sales evident in the CBI survey reinforces concern that the slowdown in consumer spending has become entrenched. If this is the case, a further 25 basis point cut in interest rates to 4.0% will almost certainly occur before the end of the year," Mr Archer said.