INTEREST rates are tipped to fall to 1% this week as policy-makers face renewed calls to protect manufacturing jobs.
Dismal industrial figures out tomorrow are expected to persuade the Bank's Monetary Policy Committee to vote through a further 0.5% rate cut on Thursday, while business secretary Lord Mandelson is under pressure to introduce further measures to stem
the tide of job losses in Britain's hard-pressed factories.
Talks are continuing between Mandelson, business groups and unions ahead of his appearance at the CBI's annual manufacturing dinner in Birmingham on Thursday.
There are hopes he will agree to temporarily subsidise the salaries of workers who are being forced to work a shorter week. Manufacturers are also seeking grants to send workers on training courses as they consider alternatives to redundancies.
As the manufacturing sector continues to haemorrhage jobs, Mandelson is under pressure to introduce measures adopted by other European countries that will tide employers over for six to nine months until credit conditions improve, and businesses hope consumer demand will pick up.
The latest manufacturing purchasing managers' index, released tomorrow, is expected to fall to a 17-year low, pushing Bank of England governor Mervyn King and his colleagues to throw even more ammunition at the economy.
Economists had previously thought the Bank would hold rates this month to allow the effects of previous cuts to filter through. But fears that the economy is now likely to undergo its severest contraction since at least the Second World War, and possibly the Great Depression, is expected to convince MPC members to use some of the last tools left at their disposal.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "Basically the economy needs all of the help it can get. We have got to a stage where inflation just isn't an issue."
Archer said it is looking increasingly likely that interest rates will come down to zero, or close to zero, in the coming months as growth figures show the UK economy has entered the recession with a bang, contracting 1.5% in the fourth quarter of last year.
MPC member David Blanchflower said last week that monetary policy needs to be "loosened further and quickly". He also raised the possibility that the Bank will print more money, adding: "For the first time in your lifetime the Bank of England… has the power to print money, to raise the money supply. I'm not going to speculate about whether we're going to do it, when we're going to do it. Hopefully if and when we do it, it will be very effective."
The full article contains 448 words and appears in Scotland On Sunday newspaper.
