PRESSURE on the Bank of England to make its first back-to-back interest rate cuts since 2001 mounted last night as further evidence emerged of a slowdown in the economy.
The bank's nine-strong monetary policy committee (MPC) was due to reach a decision at midday today, with analysts sharply divided on whether rates will be cut by a further quarter point to 4.75 per cent following April's reduction.
Inflationary co
ncerns on the back of soaring food and oil prices have led many experts to forecast a freeze this month.
However, a raft of data in recent days has pointed to a broad-based slowdown in the UK economy, with yesterday's official snapshot of the manufacturing sector adding to the gloom.
The Office for National Statistics said manufacturing output fell 0.5 per cent in March – the weakest outcome since last September. Analysts had been forecasting an unchanged reading. The wider measure of industrial production also fell, at its sharpest rate in more than a year.
George Buckley, chief UK economist at Deutsche Bank, said the findings suggested that the slowdown in the economy was "gaining traction".
The ONS report came just a day after the Chartered Institute for Purchasing and Supply said growth in Britain's dominant service sector had slumped to a five-year low.
Capital Economics economist Paul Dales said today's interest rate decision would be "a closer call than a few days ago".
"The fall in manufacturing output supports our view that industry will not be able to compensate for the consumer slowdown," he said.
"Coming after (the] weak services survey, this data may boost hopes that the MPC will cut rates again."
The MPC is charged with keeping consumer price inflation pegged at 2 per cent, but economists have warned that the current rate of 2.5 per cent could rise above 3 per cent as oil and food price rises gather pace. That would force Bank of England Governor Mervyn King to write a letter of explanation to Chancellor Alistair Darling.
The MPC cut rates for the third time in five months in April, but has not voted for back-to-back reductions since the aftermath of the September 2001 terrorist attacks.
David Kern, economic adviser to the British Chambers of Commerce, said: "Many analysts expect the MPC to keep interest rates on hold. But waiting would be a mistake. The threats to growth have become more acute since the April meeting."
• MPs yesterday gave their backing to Mervyn King but said he would need all his skills to steer through the current financial turmoil.
The Treasury select committee's report on the re-appointment of King for a second five-year term as Governor of the Bank of England said he "had fulfilled his responsibilities very well".
The full article contains 470 words and appears in The Scotsman newspaper.
