The Bank of England's Monetary Policy Committee voted to leave UK interest rates on hold at 5.75 per cent last week. The decision had been widely predicted by City analysts but was nevertheless greeted with dismay by retailers.
Evidence has been growing in the past few weeks that the UK economy is slowing, partly in response to the five interest rate increases since August last year.
Crucially, UK inflation, as measured by the consumer price index (CPI), fell to 1.8 per cent in August. This is below the Government's 2 per cent target.
A report from the Halifax showing that house prices fell in September has added to the impression that the interest-rate medicine has worked.
Market watchers now reckon rates are likely to be reduced before the end of the year, and possibly as early as next month.
The case for a cut has been strengthened by the Northern Rock crisis, widely believed to have shaken consumer confidence. Retailers say the Bank should act to bolster the market.
"[The] possibility of higher mortgage repayments is making consumers increasingly wary," said Kevin Hawkins of the British Retail Consortium.