Retailers call for interest rate reduction

The British Retail Consortium (BRC) yesterday urged the Bank of England's Monetary Policy Committee to "boost flagging consumer confidence" by cutting interest rates when it makes its announcement today.

Reflecting on a range of recent data demonstrating a gradual slowdown in the economy, the BRC's director general, Kevin Hawkins, said: "Five interest rate increases in 12 months have taken their toll on consumer confidence, making life on the high street difficult."

Mr Hawkins said the bank had already achieved its objectives with interest rate policy. "Whatever inflationary pressures the Bank was trying to cool have already well and truly subsided and will ease further in the wake of the credit crunch, which is already making lenders much more cautious," he argued. "Those costs that are still rising... some food commodities and fuel are subject to international price fluctuations and beyond the Bank's control."

The BRC's own figures confirmed that food prices are now a major source of concern about inflationary pressures in the medium to long term. The BRC revealed yesterday that the cost of goods in the shops increased in September as food prices gained, with shop prices up 0.2 per cent on August, when prices were unchanged. Food prices increased 0.6 per cent while the cost of non-food items fell by 0.1 per cent.

Fierce competition among the supermarket giants is being counteracted by a trend towards globally higher prices, with wheat in particular hitting record highs in recent months. That, in turn, has been caused by a run of bad weather in the world's main producing regions, the diversion of some crops to produce bio-fuels and the sheer pace of economic growth and demand in emerging economies such as China and India.

Higher wheat costs have spurred companies including Premier Foods, makers of Hovis, to raise prices. Morrisons said recently that the higher costs would "inevitably" mean higher retail prices for anything containing flour or milk. The International Grains Council stated a few days ago that the world's farmers probably will plant more wheat in response to demand.

Meanwhile, moderating figures on business optimism in the service sector from the latest CIPs survey revealed yesterday were broadly in line with expectations, and shouldn't push the Bank into any surprise move on rates, which, it is universally assumed, will be left at 5.75 per cent to today. A similar picture prevails on the Continent, where the European Central Bank is likely to keep rates on hold.