'Desperate' high street looks for interest rate cut

Depth of UK consumer slowdown increases pressure on Bank of England to announce a further reduction in borrowing costs

Latest figures for high-street spending over Christmas and New Year will reveal the extent of the slowdown on Britain's high streets, putting pressure on the authorities to cut interest rates.

The GfK NOP consumer confidence index covering December and January, out on Thursday, will show a desperate retail arena squeezed by rising fuel costs and a struggling consumer with "no inflation in the high street" left.

"To keep trading buoyant, retailers have offered products at significantly reduced prices – even in substantial growth markets such as flat-screen TVs," the GfK survey will say.

Bank of England figures on Wednesday will show a rise in individual borrowing in December, adding to Britain's consumer debt mountain. But this is likely to be the end of the spending spree.

A quarter-point cut in the cost of borrowing is widely predicted when the Bank's Monetary Policy Committee meets next week, but economists believe a 50- point cut is increasingly likely. "It's now not a question of if, but by how much," said Michael Taylor at Lombard Street Research.

City traders returning to work tomorrow will be hoping for a less volatile time after stock markets collapsed and a £3.7bn trader fraud was unearthed at French bank, Société Gé*érale.

Further details as to how the junior 31-year-old derivatives trader, Jérôme Kerviel, was able to pull off the world's biggest banking fraud are set to emerge. Damaging revelations will heap further pressure on Daniel Bouton, chairman and chief executive, to quit. Reports from Paris suggest that French President Nicolas Sarkozy is furious at being kept in the dark by Mr Bouton until last Wednesday – four days after the scandal was uncovered at the bank.

Britain's Treasury and Financial Services Authority said they only knew of the issue on Thursday morning, while a Bank of England spokesman said that it wasn't commenting on when it first became aware of the issue.

Société Gé*érale has long been viewed as a takeover target but analysts are warning that credit- crunch problems will mean bids are unlikely to be forthcoming. Kinner Lakhani, a banking analyst at ABN Amro, said he didn't expect a bid to emerge for at least three months. "You would look extremely aggressive if you came in with a bid now."

A Barclays Capital report on Friday warned that an extra £77bn will be needed to prop up banks' balance sheets as the monoline insurers, which insure against corporate bond failure, go bust.

Capital could be freed up by proposals to relax banking solvency ratios likely to be debated by Mr Sarkozy, Gordon Brown and German Chancellor Angela Merkel at a summit on Tuesday.