CBI and engineers call for immediate rate cut

Two of Britain's largest business groups yesterday urged the Bank of England to cut interest rates tomorrow, as a new figures showed manufacturers' profits had plunged to a nine-year low.

The CBI – which yesterday abandoned its full name of Confederation of British Industry - said the world economic slowdown was "looming large" over businesses in the manufacturing and service sectors.

Digby Jones, its director general, told business leaders in the City last night: "The Bank of England needs to soften this impact by taking rates down another notch."

His comments came as government statisticians said manufacturing firms' net rate of return in the first quarter of the year fell to 3.7 per cent, the lowest since the start of 1992.

The figures confirm anecdotal evidence of manufacturers' profits being squeezed between the rising cost of raw materials and labour and consumer resistance to price rises.

In a separate survey, the Engineering Employers Federation said its sector had already plunged into recession during the first half of the year.

It cuts its forecast for engineering growth this year from 3.2 per cent to 0.7 per cent, which would make it the worst year since 1993. The EEF said it believed output in the wider manufacturing sector would fall 0.2 per cent this year with the loss of more than 150,000 jobs.

Ian Peters, head of external affairs at the EEF, said: "We think the Monetary Policy Committee should cut rates by a quarter-point. That's very modest relative to the figures we are reporting."

The EEF had been relatively upbeat until yesterday. It blamed its change of heart on a plunge in activity among hi-tech electronics firms such as makers of mobile phones, optical equipment and computer chips.

Electronics was now forecast to grow by just 2.4 per cent this year, compared with 17 per cent in 2000.

Meanwhile, a sharp rise in house prices provided fresh evidence of the split in the UK economy. While manufacturing output slumped and redundancies rose, the price of the average home in Britain surged 1.9 per cent in June, Nationwide building society said. That took the annual rate to 9.3 per cent, led by a 10.4 surge in London. Prices in some parts of the capital rose more than 20 per cent.