Don't raise rates, CBI urges Bank of England

Further evidence of the impact of record oil prices and a slowing world economy on Britain's manufacturers emerged yesterday as the CBI published a survey showing business confidence had slumped to its lowest level in over a year.

The latest survey from the employers' organisation echoes weak official data on the manufacturing sector and the CBI urged the Bank of England not to increase interest rates again.

The survey showed order books at their lowest for six months and firms saying their margins were being squeezed by rising commodity prices while intense competition made it difficult for them to increases their prices.

Oil prices have risen by 75% since this time last year and metal prices by 55%.

"Oil and commodity prices are damaging profitability, and we expect this pressure on margins to be maintained," said Ian McCafferty, the CBI's chief economic adviser.

Rising oil prices also made consumers in the United States gloomier, with the Conference Board's gauge of consumer confidence hitting its lowest level for seven months in October.

"Consumers are more concerned about the future than they are about current conditions, and I think that has a lot to do with the high oil prices we're seeing and probably some of the election rhetoric," said Gary Thayer, the chief economist at AG Edwards & Sons in St Louis.

The CBI said 17% of companies were optimistic about the future in the three months to October while 27% were pessimistic. The resultant balance of -10% is the worst since July last year.

It said that the balance of companies reporting higher orders in the latest three months to October had risen slightly to +4% from +2%, but that for the latest month on its own the orders balance fell to -12% from -6% in September, the worst figure since April.

The employers' organisation said the uncertainty over the immediate outlook meant companies had begun to cut investment and jobs.

"There are clear threats to the manufacturing sector ... We urge the Bank of England to keep interest rates on hold for the forseeable future," said Mr McCafferty.

The Bank of England has raised rates five times since November 2003 but signs are now emerging that the economy is slowing in response, and many economists think rates, at their current 4.75% level, may have peaked.

The CBI said it expected production to hold up for the rest of the year, but new orders are expected to grow at a much slower pace which "casts doubts on prospects for continued robust growth".