Bank begins interest rate talks

Retailers smarting from their worst Christmas in three years have urged the Bank's nine-strong Monetary Policy Committee (MPC) to act to ease pressure on consumers hit by higher mortgage bills after a series of rate hikes last year.

But despite the British Retail Consortium's call for a 0.5% cut to 5%, most experts have predicted the MPC will hold rates at 5.5% on Thursday in a close-run decision.

The committee is charged with keeping inflation at 2% but it is currently running above target - 2.1% - thanks to oil prices soaring to 100 dollars a barrel, as well as rising food costs.

With rising energy bills also in prospect following Npower's move to hike prices last week, inflationary pressure remains despite signs of a slowing housing market, tougher conditions on the high street and slackening business growth.

Global Insight's chief UK economist Howard Archer said Thursday's decision was "on a knife-edge".

He said: "If forced to come down on one side of the fence, we would marginally favour the view that the MPC will delay until February given ongoing inflation risks."

But he added: "We certainly would not be shocked if the MPC did cut rates on Thursday as there is a genuine case for further pre-emptive action to try to minimise the risk of a sharp economic slowdown over the coming months."

The BRC's latest retail survey showing like-for-like sales growth of just 0.3% in December follows profit warnings from retailers such as Currys' owner DSG International and predictions of high street gloom from fashion chain Next.

Recent surveys have also shown easing growth in manufacturing as well as confidence in the UK's services sector falling to a six-year low.