Slowdown showdown as cuts and tax rises loom

The Bank of England held the bank rate at 0.5 per cent for the 18th month in a row last week and held its quantitative easing programme at £200bn.

RBS head of group economics Stephen Boyle says it is right to keep monetary policy loose even if the recovery is slowing.

He says: “The British economy needs support, especially as the Government’s spending cuts draw near.”

Ignis Asset Management chief economist Stuart Thompson says: “Growth is slowing down and that slowdown is gaining momentum but activity is still close to what the bank would consider productive potential.”

Currency Solutions director of foreign exchange Christina Weisz says if interest rates were raised by 25 basis points, it would “reinforce the feeling that the UK economy is stabilising while attracting investment”.

But she warns that the inc-rease in mortgage payments which would result coupled with a looming VAT rise could have an “extremely negative impact” on consumer confidence and household finances.

Consumer price inflation edged down to 3.1 per cent in July but remains stubbornly above the target of 2 per cent.

Legal General mortgages director Ben Thompson says: “Persistently stubborn inflation combined with a flagging economy is certainly not a marriage made in heaven and the two will no doubt co-habit for some time to come.

“Sooner or later, things will become clear as the impact of spending cuts and tax increases are felt.”

Mortgages For Business managing director David Whittaker says while many people fear that the recovery will falter towards the end of the year, he believes that “rates and quantitative easing will be held as long as possible”.

Spicehaart Corporate Sales managing director Mark Pilling says it is unlikely that the rate can be kept at an “artificially low level for much longer”.