'Crying out' for cheaper money. But economists fear their pleas will fail

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The Independent Online

Bank of England chiefs meeting on Thursday will resist calls for a cut in interest rates despite the recent market turmoil, City economists have warned.

Beleaguered Bank Governor Mervyn King, together with his eight-strong Monetary Policy Committee (MPC), is set to keep rates on hold at 5.75 per cent, ignoring pleas for a cut to boost flagging investor confidence.

David Kern, economic adviser to the British Chamber of Commerce, said British businesses were crying out for a reduction. "The Bank of England must restore its credibility and authority after the Northern Rock crisis by demonstrating greater sensitivity to the problems facing the wider economy, while at the same time making it clear that it will not yield to outside pressures," he argued.

Adrian Cooper, economic adviser to the Ernst & Young Item Club, said a quarter-point cut was necessary to address "risks to UK growth and consumer confidence". Just last Friday, consumer confidence slumped to its lowest level for nearly two years, according to the influential GfK/NOP monthly survey.

Mr Cooper said: "One rate cut is unlikely by itself to be sufficient to prevent a significant slowdown in growth next year. The MPC will need to remain ready to act promptly to offset the impact of tightening lending conditions."

A Bloomberg survey of City economists shows just one out of 51 believe the Bank will ease monetary policy this week. Interest rates are at their highest level in six years, having climbed five times in little over a year.

Fionnuala Earley, economist at Nationwide building society, said the Bank was unlikely to cut rates while market volatility persists. "The Bank will want to see concrete evidence of deterioration in the real economy, which it hasn't seen so far."

Figures from Nationwide showed that house prices rose by more than expected in August, defying gloomy predictions of an accelerated fall but hampering the chance of a base rate cut.

MPC member Andrew Sentence indicated last week that the Bank was likely to adopt a wait-and-see approach.

The chances of a cut before the end of the year are likely to hinge on October's inflation figures. The Government's chosen measure, the consumer price index, fell back to 1.8 per cent in August from 1.9 per cent in July, continuing a five-month decline since March's 3.1 per cent.