Businesses unite to fight 'premature' interest rates rise

Britain's leading business organisations are intensifying their campaign against a rise in interest rates this week, saying a move would be "premature" and could trigger a collapse in consumer confidence.

Britain's leading business organisations are intensifying their campaign against a rise in interest rates this week, saying a move would be "premature" and could trigger a collapse in consumer confidence.

Warnings from manufacturing, business and retail lobby groups came amid reports that a key survey of high street spending will reveal tomorrowthat sales tumbled 1 per cent last month.

The EEF, a manufacturers' lobby group, said output and orders had fallen back so far this year to their lowest level since winter 2003. It said profit margins were being crushed by soaring commodity prices and the intense competition that has meant manufacturers being able to pass on only minimal increases in prices.

Steve Radley, its chief economist, said: "While this slowdown may prove temporary, there is no room for complacency. The Bank has a crucial responsibility to avoid measures which could unnecessarily damage confidence."

The CBI, the largest employers' group, said retailers saw "lacklustre" sales over Christmas and the new year while manufacturing exports had been hit by the rise in the pound. Ian McCafferty, its chief economist, said: "Until the underlying strength of the economy is clearer, a rise in interest rates would be premature."

David Frost, the director general of the British Chambers of Commerce, said: "There is no need for another interest rate rise now. It would have a very damaging effect."

According to reports at the weekend, the British Retail Consortium (BRC) will tomorrow say retail sales in February were as much as 1.5 per cent lower than a year ago. Kevin Hawkins, the head of the BRC, said: "Retailers need another hike in interest rates like a hole in the head. Given the size of the mortgage debt and given the worries about a possible collapse in house prices, who knows what another rise would do."

Expectations of an imminent rate rise have risen sharply in the City aftercomments by members of the Bank of England's Monetary Policy Committee (MPC), warning of mounting inflationary pressures.

Speculation was heightened after Ed Balls, Gordon Brown's former chief economic adviser and now a prospective Labour MP, said the Government would have no issue with a pre-election rate rise as it would be a sign of economic strength.

Although none of the 50 economists polled by Reuters forecast that rates would be increased when the MPC meets on Thursday, more than half are predicting that there will be at least one more rise.

The main opponent of a rate rise within the MPC is Stephen Nickell, who told The Independent last month that it would be a mistake to raise rates when the strength of consumer spending was still uncertain.

His comments were echoed by a score of retail chiefs who united over the weekend to warn that higher borrowing costs could shatter fragile consumer confidence and spark a crash in the housing market.

The chief executives of Yates and Regent Inns, the national pubs and bars chains; the health club firm Fitness First; the fashion retailer New Look; and the high street giant Boots warned that an interest rate rise could have a knock-on effect, one Sunday newspaper said.