Businesses are calling for the interest rate to be dropped this month amid fears surrounding the worsening impact of the credit crunch.
Last month, the Bank of England's Monetary Policy Committee (MPC) voted to leave the rate at its six-year high of 5.75%.
However, businesses have argued that, with inflation now residing below the government's target of 2%, a cut in the cost of borrowing is needed to prevent a significant economic slowdown.
The British Chambers of Commerce (BCC) said today that the tightening of credit conditions both in the UK and abroad, coupled with the fact that inflation in quarter three was below the level predicted by the Bank of England's August Report, means that UK economic activity looks set to weaken more sharply than was envisaged.
Consequently, the BCC argued that a small reduction of the rate is now needed, ahead of this month's decision on Thursday, to avoid 'serious problems in 2008'.
David Kern, economic adviser to the BCC, said: “Most analysts still believe that the MPC will choose to postpone the necessary cut in rate.
“A growing number however are now supporting our assessment that an early cut is essential. The cumulative increase of five interest rate rises is now squeezing UK personal disposable incomes, and there are clear signs that the housing market is softening.”
The latest figures from Experian FootFall revealed that, whereas Halloween celebrations led to the highest level of shoppers seen so far this year during half-term week (a 12.7% week-on-week increase), the monthly figures showed that this reprieve was merely temporary.
In fact, the overall monthly figures showed a 'worrying year-on-year fall' for the third consecutive month, with shopper numbers dropping by 2.4% in October compared to the same month last year.
Martin Davies, a spokesperson for FootFall, commented: “October’s figures indicate a slow start to Christmas for British retailers as cautious consumers continue to stay away from the high street, in response to tighter credit conditions,higher domestic fuel bills, record levels of consumer debt and rising unemployment.
“This isn’t helped by the fact that the MPC is likely to hold the base rate of interest in November which will continue to restrain consumers’ propensity to spend as mortgage payments rise alongside the cost of servicing debt.
“With retailers’ hopes of a bumper Christmas fading fast, we would expect to see discounting and sales promotions in the run up to Christmas and beyond in a bid to drive people back into shops.”
Crimson Business Ltd. 2007
