Business leaders call for half-point interest rate cut this week

Britain's biggest business groups united yesterday to call for an interest rate cut of at least half a percentage point from the Bank of England this week, as the impact of the credit crisis spread further into the real economy.

The Confederation of British Industry said the Bank's Monetary Policy Committee, which begins its deliberations tomorrow and announces its decision on interest rates on Thursday, had no choice but to cut rates.

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"In the light of the current turmoil in the markets, the damage to confidence and implications for the real economy, the CBI believes that the Bank of England should cut interest rates by half a point when it meets on Thursday," said the CBI's deputy director-general, John Cridland.

"In our recent economic forecast, we believed that the MPC would have scope to cut rates by half a point in November, but in the interests of stabilising confidence for markets, businesses and consumers, the CBI now believes that this move should be brought forward to the October meeting."

The British Chambers of Commerce (BCC), which represents smaller business interests, said it too believes that a 0.5 percentage point cut is necessary in order to enable the UK to avoid the worst of an economic slowdown. The BCC also called for interest rates to be reduced from their current level of 5 per cent to 4 per cent over the next four months.

David Kern, economic adviser to the BCC, said: "The mounting global banking crisis reinforces our view that immediate threats to growth are more critical than dangers of higher inflation.

"Without forceful and urgent corrective work, there is a serious danger that the recession will deepen and cause huge damage."

Last night, the BCC published the findings of its survey of 5,000 small businesses' views of the economy during the third quarter of the year, which it described as "exceptionally bad".

The survey shows that there has been a collapse in confidence in almost every sector of the market, as well as declining sales, profits and forward orders.

"The results support the view that a UK recession has started and that the downturn is getting worse," Mr Kern added. "The domestic economy is under immense pressure."