Signs of slowdown fuel calls to leave interest rates unchanged

Business groups and trade unions last night urged the Bank of England to keep interest rates on hold later today as new figures hinted at a slowdown in the consumer economy.

Business groups and trade unions last night urged the Bank of England to keep interest rates on hold later today as new figures hinted at a slowdown in the consumer economy.

The Confederation of British Industry, British Chambers of Commerce and the Trades Union Congress united in calling on the Monetary Policy Committee to keep the base rate at 6 per cent for the sixth month running. The announcement will come at noon.

Analysts believe rates will stay on hold but admit the decision is the most difficult to call since the MPC was set up in 1997.

The CBI yesterday published its monthly retail sales survey showing volumes picked up in July following weak growth in June. But it said the pace of growth had cooled since the spring. "It strengthens our view that the MPC should leave rates on hold," said Kate Barker, the CBI's chief economic adviser.

Ian Peters, the BCC's deputy director-general, said the Bank must continue its "wait-and-see approach". "The continued strength of sterling is placing manufacturers under increasing pressure," he said. Brendan Barber, deputy general secretary of the TUC, went further, saying: "Although in the long term, rates must begin to fall again, a stretch of stability is the best bet for this struggling sector."

Separate figures showed that growth in the construction sector, which makes up about 5 per cent of the economy, slowed for the fourth month in a row in July.

But the report, from the Chartered Institute of Purchasing and Supply, flashed up signs of inflationary pressure with suppliers' delivery times, raw materials costs and labour shortages all increasing.

Yesterday's figures typified recent data, which failed to give a clear picture of the direction of the economy. While the economy grew strongly in the second quarter, manufacturing enjoyed a surprise revival and mortgage lending stayed strong, on the other side of the equation average earnings growth fell sharply, house prices fell again and inflation stayed below target.

Sterling fell to two-month lows below $1.49 against the dollar. Traders said the pound had been undermined by expectations that rates will not change.