Rate-Cut Calls Look Set for Cold Shoulder

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Byline: JANE PADGHAM

A NEW-LOOK Bank of England monetary policy committee holds its first meeting today, with calls for an interest-rate cut ringing in its ears.

Former Goldman Sachs economist David Walton joins the nine-strong MPC, replacing Marian Bell whose departure deprives the MPC of one of its most dovish members. Walton is more likely to occupy the centre ground. JANE PADGHAM looks at the committee's agenda ahead of its decision at midday tomorrow.

House prices

Another month, another fall in property prices. Building society Nationwide reported a 0.2% dip in values in June, pulling the year-on-year rate of increase down to a mere 4.1%. That is the lowest annual rate for almost nine years and a far cry from the 20%plus growth of last summer. However, hopes for a soft landing rather than a damaging crash remain high.

High Street spending

The crisis on the High Street is worsening. In the latest evidence that debt-laden consumers have tightened their belts, the CBI said retailers suffered their worst fall in sales on record in June.

The decline may have been exaggerated by last year's Euro 2004 mini-spending boom on beer and plasma TVs but there is little doubt retail spending has hit a wall.

Growth

The Office for National Statistics' updated calculation of the economy's first-quarter growth was a shocker. Gross domestic product - a measure of overall economic activity - rose just 0.4% in the January to March period, down by a third from an initial estimate of 0.6%. The annual growth rate was slashed from 2.7% to 2.1% - the worst performance for more than two years.

Gordon Brown's 3% to 3.5% forecast for the full year now looks impossible.

Manufacturing

An improvement in factory activity in June brought a glimmer of hope to the battered manufacturing sector. The purchasing managers' index from the Chartered Institute of Purchasing and Supply registered 49.6, up from 47 in May but still below the 50 nochange level. Another industrial recession still looks likely as manufacturers struggle with sky-high energy prices, Asian competition and anaemic eurozone growth. …