Rate cut demand as economy stalls

A raft of new evidence showing the economy grinding to a halt led to calls yesterday for the Bank of England to make an emergency cut to the cost of borrowing to boost confidence.

Last-minute shoppers failed to save retailers from a dismal Christmas, while Britain's beleaguered manufacturers are slashing prices at the fastest rate in 40 years in desperate attempts to shift stock, according to the latest official figures published yesterday.

Retail sales growth over the three months to December fell by 0.3 per cent, according to figures published today by the British Retail Consortium. The BRC said this was the first time the three-month sales rate had been negative for the first time since it began its survey in 1994.

A leading forecasting institute said yesterday that output was virtually flat in the last three months of the year. The National Institute for Economic and Social Research estimates that the economy grew by just 0.1 per cent in the three months to November.

Retailers called for immediate action from the Bank's monetary policy committee. "We need the Bank to make a substantial cut in the interest rate immediately to show its willingness to support the economy," said Ann Robinson, the BRC's director general. "The consumer economy has slowed down or come to a full stop." Only a burst of pre-Christmas shopping and a good start to the sales kept the December figures in the black. The BRC said sales rose by 2.6 per cent over the month, compared with growth above 7 per cent for the four previous Decembers.

"Retailers will be asking what happened to Christmas," said Andrew Higginson, chairman of the BRC's economic affairs committee. "December is a crucial month, and for a number this was the worst they can remember." Meanwhile, separate figures released by the Office for National Statistics showed that factory gate prices for 'core' manufacturing goods - not affected by seasonal factors or tax increases - are falling at the fastest rate since official figures began in 1958. Prices fell by 0.6 per cent in the year to December for core goods, while output prices overall were flat for the first time since March 1960.

"There can be little fear of pipeline inflation pressure feeding through to the retail level at any point in the near future," said David Coleman of CIBC Wood Gundy Oppenheimer.

Separate figures from the ONS showed that output in the sector has declined for the fourth month in a row. Factory output dropped by 0.2 per cent in November, and has now fallen 1.5 per cent from the July peak, according to the ONS.

Despite the gloomy news from elsewhere in the economy, business leaders were slightly more optimistic in the last quarter of 1998, according to a survey from the Institute of Directors. After dramatic falls in confidence in the previous two quarters, the apparent improvement in the world economy in November and December helped improve sentiment, the IoD said.

"Even though overall economic growth is slowing we are optimistic that the economy as a whole will not slip into recession," said Ruth Lea, the head of the IoD's policy unit. "We urge the Bank to cut to 5 per cent or even less by the second quarter."