Unions call for interest rate cuts

11:21am Thursday 4th September 2008

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Unions and business leaders have made fresh demands for interest rate cuts as they called on the Bank of England to combat growing recession fears.

The TUC and the British Chambers of Commerce voiced their concerns ahead of the Monetary Policy Committee's (MPC) rates decision.

Despite an economy in its worse state for 16 years, the committee is expected to keep rates unchanged at 5% for the fifth successive month due to inflation fears.

But the TUC's head of economics and social affairs Adam Lent said: "The recent spate of bad economic news shows that the great danger is recession, not inflation.

"With little domestic pressure on prices, the Bank must start to cut interest rates aggressively or the slowdown will be far worse than it needs to be."

Rate-setters are currently grappling with inflation more than double its official 2% target at 4.4% - fuelled by oil food and energy prices - and set to peak at 5% or more in the months ahead. A weaker pound is adding to the pressure.

But the BCC's economic adviser David Kern said the MPC should act to cut rates in October or November when inflation came to a head.

He added: "The MPC will almost certainly keep interest rates on hold... but it cannot ignore the mounting threats of falling UK house prices and worsening pressures on the global banking system.

"The economy urgently needs an interest rate cut to counter threats of recession."

JP Morgan economist Allan Monks predicts rates will fall in November when inflation risks have subsided.

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