Business leaders call for interest rate cut

Business leaders have called on the Bank of England to cut interest rates ahead of its monthly meeting this week.

Both the Confederation of British Industry (CBI) and the Federation of Small of Businesses (FSB) argue that a full 1.0% reduction in rates would underpin business and boost consumer confidence during the current downturn.

Last month, the Bank cut its base rate from 5% to 4.5% in an emergency co-ordinated move by the world's central banks. A further rates cut is expected to be announced at midday GMT on Thursday.

CBI Deputy Director-General, John Cridland, said: ‘We have talked to businesses of all shapes and sizes across the UK, and the need for a further rate cut is clear. The recession into 2009 will be both longer and deeper than expected, and we need the strong medicine of a full percentage point cut.’

However, the British Chambers of Commerce (BCC) has advised the Bank of England’s Monetary Policy Committee (MPC) not to ‘use all its bullets too early’ by slashing rates by a full percentage point this week.

Instead the organisation has advised the MPC to cut rates by half a percentage point now, before making additional cuts in the ensuing months.

‘The MPC must follow a deliberate strategy of cutting rates steadily and forcefully, without lurching into sudden emergency measures that may unsettle the markets and undermine confidence,’ said David Kern, Chief Economic Adviser to the BCC.