They urge the Bank of England not to be left behind in reducing rates

The Bank of England was urged last night not to be left behind as falling inflation paved the way for further interest rate cuts in Europe and the United States.

Inflation in France fell to 1.5 percent and in Spain to 1.7 percent, according to September figures that were both lower than expected.

In the United States, personal consumption expenditure (PCE) inflation, the preferred measure of the US Federal Reserve, fell to 2.2 percent last month, also below forecasts.

It caused bond yields in both Europe and the United States to fall on expectations of further rate cuts by the Federal Reserve and the European Central Bank.

Both have already cut them by half a percentage point this year, but the Bank of England has been more cautious so far, cutting just a quarter of a point last month.

Governor Andrew Bailey has hammered home the message that rates will only fall “gradually,” even though inflation has fallen to around 2 percent.

And other members of the Bank’s Monetary Policy Committee, charged with setting rates, have been sent to give speeches stressing the “hold firm” approach.

But Julian Jessop, of the free market think tank the Institute of Economic Affairs, said: “Interest rates here are higher than necessary to continue putting pressure on inflation.” The longer the Bank waits before cutting again, the greater the risk that it will fall further behind.

The Bank’s cautious stance compared to the ECB and the US has boosted the pound, which is trading around two-and-a-half-year highs against the euro and dollar. But mortgage holders will be better off if it is cut more quickly, while business borrowers also want rates to fall.

Martin McTague, national president of the Federation of Small Businesses, said its latest figures show “that the funding environment for small businesses remains difficult”.

He said: ‘Small businesses will expect to see a sustained fall in rates over the coming months and into the new year.

“High financing costs over a long period of time meant stunted growth as small businesses suspended their investment and expansion plans, leading to a vicious cycle of pent-up demand.”