Bank faces interest balancing act

THE Bank of England's Monetary Policy Committee faces a tough balancing act when it meets to decide the level of interest rates this week.

A new report by accountant BDO Stoy Hayward says that the UK economy is on course for growth of around 2.5% by the end of this year, but that it is unlikely to meet Chancellor Gordon Brown's forecast 3-3.5% for 2003 unless interest rates fall below their current 4%. It urges the MPC to set aside its fears about rampant house price inflation and cut rates by 0.25%.

Economist David Kern said a rise in interest rates is now likely to be delayed until October or November, because of the damage to confidence caused by global stockmarket falls in the wake of US corporate scandals such as Enron.

Accountant Ernst & Young said that the number of profit warnings to hit the stock market has slowed sharply, despite shock downgrades from high profile companies including Abbey National and Big Food Group.