CBI issues call for interest rate cut

The CBI has called for a cut in interest rates on the back of a report, published today, indicating a dramatic fall in manufacturing orders.

In its Quarterly Industrial Trends survey, the CBI say it is "particularly worrying" that, with a deterioration in domestic demand, orders have fallen at the fastest rate since April 1999. The CBI now predict that the pace of job shedding over the next four months is expected to accelerate to the fastest rate for a year.

The survey shows that 37% of firms reported a fall, while 16% saw a rise – equating to a negative balance of minus 21% compared with minus 9% in the January survey. The fall in domestic orders was "greater than expected", registering a negative balance of minus 23% - comparing to minus 13% last quarter. Total orders, say the CBI, are expected to continue falling sharply over the coming months.

The CBI concluded that the weakness in global trading conditions has spread to the home market. And despite the negative – but extraordinary – impact of the war in Iraq, this is the third consecutive survey to register a fall in manufacturers' confidence.

Digby Jones, CBI Director-General, said: "The end of the Iraq conflict will steady nerves. But the world's economic problems were there before the war and they are still there now. Manufacturers hoped that domestic demand would hold up until there was a pick up in global trade but that does not seem to be happening.

"This has been compounded by a slowdown in other parts of the economy, most worryingly in consumer spending. It would be wrong to overstate the situation - we are not predicting a recession at all. But the time has come for another cut in interest rates to see us through this difficult patch. The prospects for a sustained recovery appear a long way off and signs of inflation in the wider UK business sector are rare."

Firms continue to report intended cuts in capital expenditure over the next 12 months, largely due to over capacity, demand uncertainty and pressure on profit margins. Planned investment on innovation and training is flat following the modestly positive intentions reported in the previous survey.

The survey of 937 manufacturers was carried out between March 20 and April 9.

(GMcG)