Bank must 'get off the fence' and cut rates, says CBI
Wednesday, 3 August 2005
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Sir Digby Jones, the figurehead of British business, urged the Bank of England yesterday to "get off the fence" and cut interest rates as new figures showed retail sales fell in July for the fifth month in a row.
A survey of 125 retail groups by the CBI, the UK's largest employers' group, showed almost half reported an annual fall in sales volumes last month. The net balance between falls and rises was minus 18 per cent, close to June's record 22-year low of minus 19 per cent.
Sir Digby, the CBI's director-general, said: "As the risk of inflation remains low, a timely cut in interest rates on Thursday is essential to maintain growth and consumer confidence. The argument for a 'wait and see' approach is fading fast - it is time for the Bank of England to get off the fence."
The CBI said retailers were "unaffected" by the London bombings on 7 July - implying that the slowdown was driven entirely by wider problems. It blamed continuing anxiety over the state of the housing market, rising interest rates and tax increases for consumers' unwillingness to open their wallets.
Separately FootFall, the retail traffic analysts, said the number of visitor numbers fell just 1.1 per cent in July. "The terrible events in London have remained predominately localised," it said. The largest falls were in the furniture and carpet sector, while clothing, confectionery, tobacco and news all fell at faster rates than in June.
Sir Digby added: "When considered alongside the weakness of order books in the manufacturing sector and the depressed state of the housing market, a marked slowdown in the economy is clear to see."
The Institute of Directors added its voice to the chorus calling for a rate cut. It said failure to cut rates this month could see a pronounced "shift-to-thrift" by companies and consumers.
A separate survey of accountants working with retail businesses showed that confidence in the sector had plummeted over the latest quarter. The ICAEW/ Orange index fell to minus 30 from zero six months ago, on a scale where a number below zero indicates falling confidence.
A quarter-point cut in interest rates is almost certain when the MPC finishes its two-day meeting tomorrow, City analysts said. Howard Archer, a UK economist at Global Insight, said: "The weaker-than-expected survey in effect guarantees a rate cut on Thursday. Continuing weakness in retail sales reinforces concern that the slowdown in consumer spending has become entrenched."
The financial markets have already fully priced in a quarter-point cut tomorrow, meaning that a failure to cut rates would risk triggering a jump in market interest rates.
This was echoed by a new survey of consumer confidence by Nationwide building society that showed households have been buoyed by hopes of lower borrowing costs. Its index, which it claims is modelled on the key US Conference Board survey, rose to 101 last month from 95 in July. Stuart Bernau, the executive director of the society, said: "The prospect of an interest rate cut may have aided the rebound in sentiment."
