CBI urges half-point rate cut after terror attacks 'body blow'

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The Independent Online

Business leaders last night piled on the pressure for a half-point cut in interest rates this week despite evidence that only one in 10 companies expect to be seriously affected by the terror attacks on the US.

A survey of 250 top executives published by the CBI on the eve of its annual conference in Birmingham showed that while nearly two-thirds of companies said the events of 11 September had damaged business prospects, only 11 per cent felt they were now "much worse".

Digby Jones, director general of the CBI, denied that calling for a half-point cut was an over-reaction which would merely serve to help talk the economy into recession. He said 11 September had been a "body blow" to business and argued that a decisive move now would be better than waiting to see how the economy fared over the winter.

"If the Bank of England doesn't cut by half a point now then I don't know when it will. Confidence has taken a marked knock though by no means has it collapsed. Firms are clearly worried that the global economic slowdown now underway will be longer and deeper than it otherwise would have been.'

Mr Jones predicted a rise in the number of businesses going bust but he said he was "cautiously optimistic" that the UK would escape recession. The CBI still expects the economy to grow by 2 per cent next year although it does not expect to see an upturn until the autumn.

The survey, carried out between 12 and 23 October by Mori, showed that a third of companies expect 11 September to hit orders and profits, while more than a quarter have cut investment.

But companies expect the impact to be relatively short-lived with almost a half predicting they will have recovered in a year's time and only 10 per cent anticipating the effects will last for more than two years. Mr Jones said one of the most worrying aspects of the survey was the warning from many companies that investment plans had been put on hold. "Firms are clearly bracing themselves for a rough ride over the next 12 months," he added.

The CBI is calling for a package of tax breaks from the Chancellor Gordon Brown in this month's Pre-Budget report to encourage research and development expenditure and training and help out the aviation industry. The employers' organisation said Mr Brown should also stand ready to introduce an emergency series of tax measures in the spring if the outlook for business and the economy worsened but it was not specific about what the package should include.

Mr Brown told the CBI last night that he understood people's worries about their jobs and held out hope of assistance in the Budget. "In the Pre-Budget Report we will do more to recognise the vital contribution of modern manufacturing to exports, innovation and our great regions."

He reiterated that no country could "insulate" itself from the global slowdown but said Britain was in a better position to withstand the downturn than in the past. "Despite the difficulties and pressures we now face, with interest rates cut six times since the start of 2001 and fiscal policy supporting growth this year, I am cautiously optimistic," he said. The Chancellor added that would not "relax the fiscal disciplines" despite the pressure on the public purse from the war on terrorism. "I have told my Cabinet colleagues and I now repeat publicly that this is the time for more discipline," he said.

* The UK is set to avoid recession in 2002, despite the economic slowdown triggered by recent international events – unlike the US, Japan and parts of continental Europe – according to a report from BDO, an accountancy firm. The study said recent interest rate cuts from the Bank of England, and the prospect of more to come, "is keeping the threat of hard times at arm's length".