Pressure for rate cut grows

By GUY DRESSER
Updated:

 

FIRMS today reported a 'dramatic' slump in sales and profits and warned that confidence was at its lowest level for years. A third of companies said sales and orders had fallen in the past six months, while spending on investment was at its worst level in two years.

Bank of England

The findings are likely to add to the case for a cut in interest rates when the Bank of England’s monetary policy committee meets next month.

A survey of 1,800 firms by Lloyds TSB showed that almost as many planned to cut jobs in the next six months than recruit new staff. The figures echo similar findings from the manufacturing sector which show economic growth in the UK slackening in the second quarter of the year.

Although the economy expanded in the three months to June, it did so at a slower rate than in the first quarter, according to a survey from the Royal Bank of Scotland and NTC Research.

The figures showed that private sector output rose in 11 of the 12 regions in the UK and declined only in the East Midlands - where output contracted for the first time in two years. However, across all regions, the rate of increase was the weakest since the second quarter of 2003.

Diana Brightmore-Armour, managing director of Lloyds TSB Corporate said: 'Confidence among UK firms has fallen sharply since the start of the year which could put the brakes on economic growth. With oil prices having risen by 60% year-on-year, many firms have suffered from higher production costs but have been unable to pass these on to the customers.'

RBS Group Chief Economist Dr Andrew McLaughlin said: 'Overall, the UK economy continued to grow in the second quarter of 2005, but at a slower rate. Official data will not be available for some time but, on this evidence, they will get slightly worse before they get better.'

Retailers are hoping that tourists and shoppers don’t stay away from High Streets this summer. After last week’s terrorist attacks in London, many analysts said they expected a wave of cancellations from US tourists – a move that could push the UK tourist industry into recession.

But over the weekend the evidence was that shoppers were back and tourist chiefs claimed that few cancellations have been reported by airlines and tour operators.

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