Item Club demands cut in base rate

Published on Sunday 30 September 2007 01:23

THE Bank of England must produce an interest rate cut at Thursday's Monetary Policy Committee meeting or risk long-term damage to the economy, Ernst & Young's influential Item Club has warned.

Adrian Cooper, Item's economic adviser, said a series of rate cuts would probably be needed to avert a full-scale credit crunch which could slash UK economic growth in 2008 and 2009.

He said: "A cut would show that the Bank of England is at last responding with appropriate vigour to the risks to UK growth and consumer confidence. However, one rate cut is unlikely by itself to be sufficient to prevent a significant slowdown in growth next year to well below trend."

Interest rates are now at their highest level in six years, having climbed five times since August 2006 to reach 5.75% as the Bank fought to keep inflation under control. But rate cut supporters on the MPC could get ammunition from the Purchasing Managers' Index on Monday which is expected to reveal that the manufacturing edged lower.