Fed under pressure to cut interest rates again

Pressure is growing on the US Federal Reserve to join the European Central Bank in cutting interest rates this week as the world economy shows more signs of fragility.

The chance of a cut before the next Federal Open Market Committee in mid-May has increased to about half, according to Wall Street economists, after March figures revealed the sharpest increase in US unemployment in nearly a decade.

UBS Warburg economist Jim O'Sullivan says: 'We're certainly flirting with recession.' Stephen Roach, chief economist at Morgan Stanley in New York, agrees: 'Interest-rate cuts are not going to be sufficient to stop the economy going into recession, but they could help contain the downside - I see unemployment moving to 6 per cent by the end of 2002.'

Here, two key surveys this week are expected to show worries about the US beginning to affect British companies. The Confederation of British Industry quarterly financial services report, out tomorrow, is set to paint a gloomy picture. On Thursday the British Chambers of Commerce is expected to release a downbeat survey of 10,000 member companies.

The European Central Bank is widely expected to cut rates the same day.

'The ECB is in some denial about the impact of the deteriorating international economy. If they miss this opportunity they will fall worryingly behind the curve,' says Roach.