Call to cut interest rates to combat UK recession fears » Bill Payments » 24dash.com

Unions and business leaders made fresh demands for interest rate cuts today as they called on the Bank of England to combat growing recession fears.

The TUC and the British Chambers of Commerce voiced their concerns ahead of the Monetary Policy Committee's (MPC) rates decision, due at midday.

Despite an economy in its worse state for 16 years, the committee is expected to keep rates unchanged at 5% for the fifth successive month due to inflation fears.

But the TUC's head of economics and social affairs Adam Lent said: "The recent spate of bad economic news shows that the great danger is recession, not inflation.

"With little domestic pressure on prices, the Bank must start to cut interest rates aggressively or the slowdown will be far worse than it needs to be."

Rate-setters are currently grappling with inflation more than double its official 2% target at 4.4% - fuelled by oil food and energy prices - and set to peak at 5% or more in the months ahead. A weaker pound is adding to the pressure.

But the BCC's economic adviser David Kern said the MPC should act to cut rates in October or November when inflation came to a head.

He added: "The MPC will almost certainly keep interest rates on hold on today... but it cannot ignore the mounting threats of falling UK house prices and worsening pressures on the global banking system.

"The economy urgently needs an interest rate cut to counter threats of recession."

Splits among the bank's rate-setters have become more public in recent weeks as Professor David Blanchflower called for immediate rate cuts and called his committee colleagues "misguided" for their focus on inflation.

He was hitting back at a newspaper article by fellow committee member Tim Besley, who warned that letting inflation get out of control would be "damaging and dangerous to the economy" and herald a return to the 1970s.

But more evidence of the slowdown has been given in survey data published this week which showed manufacturing, services and construction activity shrinking in August, despite registering slight improvements from July's lows.

Housebuilding has meanwhile seen steep declines because of the impact of the credit crunch on mortgage availability, while the CBI business group said high street retailers have had a "summer to forget".

JP Morgan economist Allan Monks predicts rates will fall in November when inflation risks have subsided.

"Although the MPC may be slowly coming round to the idea that rates need to come down, a cut at tomorrow's September policy meeting looks very unlikely," he added.