LONDON—Fears that the British economy is headed for a significant slowdown crystallized further Thursday with downbeat statements from retailers and a new report indicating banks plan on cutting back lending to consumers and corporations.
Analysts said mounting evidence of slower growth could lead to a rate cut as early as next week.
Electrical goods retailer
A forecast of better-than-expected 2007 profits from major clothing retailer Next PLC was overshadowed by an accompanying warning of a grim 2008.
"There's no point us trying to kid ourselves that we are going to have anything other than a difficult year," said Next finance director David Keens.
Majestic Wine, Britain's biggest wine warehouse chain, said that a late holiday sales boost failed to offset a "disappointing" November.
The worrisome retail data arrived alongside a Bank of England survey showing that households and companies are likely to find it harder to borrow money as banks tighten lending criteria.
The central bank's credit conditions survey also revealed that prime lending demand for houses was weaker than expected in the fourth quarter, suggesting that the housing market is cooling markedly.
Global Insight economist Howard Archer said the significant tightening of credit conditions for both households and corporations increases pressure on the bank to trim interest rates further.
"It is highly possible that the Bank of England could cut interest rates from 5.5 percent to 5.25 percent as soon as next Thursday, and we expect a move by February at the latest," Archer said.
The Bank of England has already cut rates in response to the fallout from the U.S. subprime mortgage market collapse and the ensuing global credit squeeze.
The crisis has hit hard in Britain, where just a few months ago economists expected the central bank to raise interest rates to cool inflation.
Instead, the bank's monetary policy committee last month voted unanimously for a quarter percentage point cut to 5.5 percent from a six-year high of 5.75 percent.
The British government revised down its 2008 GDP growth forecast to between 2 percent and 2.5 percent in October, well below the 3.1 percent growth in 2007 and its pre-credit crisis estimate for 2008 of between 2.5 percent to 3.0 percent.
Many economists are even more pessimistic, with several slashing their forecasts to as low as 1.8 percent.
Next and DSG joined growing calls for a rate cut next week to ease pressure on consumers.
"Clearly, a reduction of interest rates would help and would send the right message, and that's what a lot of people are expecting," said DSG finance director Kevin Byrne.
DSG, which operates stores across Europe, said sales at shops open more than a year fell 1 percent in the 11 weeks to Dec. 29, fueling fears that many stores will report poor Christmas sales in trading statements due in the coming days.
