Business says rate cut now on the agenda

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The Independent Online

The slump in world stock markets has put a cut in UK interest rates "on the agenda", business leaders said yesterday despite reporting that companies were only "cautiously optimistic".

The slump in world stock markets has put a cut in UK interest rates "on the agenda", business leaders said yesterday despite reporting that companies were only "cautiously optimistic".

The British Chambers of Commerce (BCC) urged the Bank of England to keep rates on hold as long as possible to give businesses the stability they needed to build on the tentative economic recovery.

The call came as fresh figures from the mortgage industry showed a cooling in new lending, suggesting pressure from the housing market for a rate rise has eased.

The Council for Mortgage Lenders said mortgage lending dipped in June to £17.1bn, after touching a record high of £20.3bn in May. Last month's figure remained well above the June 2001 figure of £14.9bn.

"After several months of buoyant figures which culminated in record lending in May, it is no surprise that we should see a decline this month," said Michael Coogan, the director-general of the CML. "The latest figure is still the second highest on record and shows the housing market remains buoyant."

The BCC said its latest survey of members' performance over the latest three months showed that the climate was "cautiously positive".

Manufacturing industry consolidated the gains it made in the first quarter of the year; the services sector remained "robust"; while export orders rose across the board, probably boosted by the pound's fall against the euro.

But David Frost, its acting director general, said: "The manufacturing recovery is not yet assured. With the global picture still unclear, inflation at a 27-year low and the stock markets threatening to hamper economic prospects, there is no need for the Bank to be even contemplating raising rates in the short term."

David Kern, its chief economic adviser, added: "My personal view is that if what we have seen [on the markets] is repeated then rates will be cut and they will be cut first in the US. It is on the agenda although it does not need to happen tomorrow."

He said that further falls in share prices could hit both consumer and business confidence. However, the organisation's president, Anthony Goldstone, warned that an unexpected increase in rates would damage confidence. "We should appeal that rates stay on hold as I think we should have some stability rather than worrying about it every month," he said.

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