Business flak for Bank of England as interest rates kept on hold

THE Bank of England came under fire last night for not reducing interest rates at a time when homeowners and consumers are suffering the effects of the global credit crunch.

The Bank's Monetary Policy Committee (MPC) said it was keeping interest rates at 5 per cent despite coming under pressure to make a fourth cut in six months following a flurry of poor economic news.

City economists said they expect a cut next month, with policymakers believed to be reluctant to do so yesterday because of fears that rising oil and food prices will force inflation above 3 per cent.

But last night the British Chamber of Commerce (BCC) called for an immediate cut in interest rates, saying it would help hard-hit businesses.

David Kern, an economic adviser to the BCC, said UK businesses had been resilient in the face of worsening economic conditions, but that it would be "complacent to disregard the dangers facing the economy".

He added: "A small cut in interest rates, to 4.75 per cent, would alleviate stresses in vulnerable areas of the economy and strengthen business confidence without taking undue risks with inflation."

Data released earlier this week revealed activity in the services sector slowed to its lowest level since March 2003. There was also an unexpected 0.5 per cent fall in manufacturing output in March.

Further pressure was piled on the MPC after house-price growth turned negative during April for the first time since February 1996.

Meanwhile, business organisations in Scotland said they were "disappointed" with the announcement.

David Lonsdale, assistant director of the CBI in Scotland, said: "The latest data shows the economy is slowing, albeit only gradually, and at the same time inflationary pressures continue to mount… it is no surprise that rates were kept on hold this month."

Fiona Moriarty, director of the Scottish Retail Consortium, said: "We're seeing very little impact from the recent interest rate decreases because these take time to seep through. There is an urgent need to bolster consumer confidence."

Stuart Porteous, head of economics at RBS Group, added: "Policymakers will want to wait a little longer to assess whether the Bank of England's new lending facility is easing the liquidity squeeze (before acting on interest rates]."

ACCOUNT CHARGES UP

TWO of the UK's biggest banks have increased current account charges for some of their customers.

The Royal Bank of Scotland Group, which includes NatWest, and Lloyds TSB, has hiked rates for people with certain "packaged accounts".

Both denied the move had anything to do with their recent loss of a High Court test case over unauthorised overdraft charges, saying instead that the rates had simply not been increased for a number of years.

Packaged accounts are current accounts that charge a monthly fee but include a range of additional services.