Business leaders appealed to the Bank of England yesterday not to raise interest rates by a half-point this week amid a growing chorus of calls for the Monetary Policy Committee to take tougher action.
The CBI said a 0.5 percentage point rise - the first for a decade - would be a "real blow to business", while EEF, the manufacturers' group, said it would be a "step too far".
Their warnings came as a survey published today shows the four rate rises since November have started to have an impact on the business sector.
Analysts believe a quarter-point rise to 4.75 per cent is all but guaranteed but speculation over the need for tougher action has risen after the latest house price figures.
The National Institute of Economic and Social Research urged the MPC to take more "forcible" action to cool house prices and consumer spending. It said none of the Bank's earlier rate rises had slowed the consumer, a point echoed by The Economist magazine, which called for a half-point rise.
Last week, the Bank of England said growth in consumer borrowing had hit a fresh record, while Nationwide building society said annual house price inflation had hit 20 per cent.
But employers' groups urged the Bank to stick to its plan to raise rates gradually, especially as anecdotal evidence pointed to a slowdown in the housing market. John Cridland, the deputy general of the CBI, the largest employers' organisation, said: "Any surprise rate move simply risks pushing sterling higher, further squeezing exporters' already thin profit margins."
Martin Temple, the director general of the EEF, said: "Industry would regard a half-point rise as a step too far. Having signalled its intention to take a cautious approach to tightening policy, any rise [by the MPC] above market expectations is likely to provide upward pressure on sterling and damage the prospects for exporters."
David Kern, economic adviser to the British Chambers of Commerce, said the National Institute's view was based on a "questionable" theory that houses were 30 per cent overvalued. "I would agree house prices are too high but I don't think you have to adopt harsh measures that may well damage the wealth-creating private sector and not necessarily have the desired effect on the housing market," he said.
The Bank's chief economist, Charlie Bean, last week calmed fears of a double strength rate rise, saying the Bank was "not in the business of trying to clobber the consumer". But the Institute of Directors said the need for a half-point rise was a "darned close call" given the "resilience" of consumers.
Business conditions had fallen to their lowest level this year, the BDO Stoy Hayward Business Trends said. It highlighted a drop in orders as rate rises caused consumers and businesses to rein in their spending.
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