The Bank of England is meeting to decide whether to alter UK interest rates or leave them at their present 38-year low for the 11th successive month.

Most economists expect the Bank's Monetary Policy Committee (MPC) to hold interest rates at 4% but many say the evidence in favour of another rate cut is piling up.

Underlying export volumes to Europe slumped by over 10% in the month

John Butler, HSBC

Arguments for a rate reduction focus on the need to give the feeble world economy a boost.

The dilemma facing the MPC is that heeding such calls by making borrowing even cheaper risks encouraging UK consumers to load themselves up with more debts on their mortgages and credit cards.

Trade fears

The MPC got new evidence on Wednesday of how the global slowdown was hurting UK plc in the form of a bigger than expected rise in the trade deficit in August.

The Bank of England's hands are tied

SG Economics

The deficit in trade in goods widened to �2.8bn in August from �2.4bn in July, official figures showed.

"Underlying export volumes to Europe slumped by over 10% in the month, reflecting the dismal state of demand on the Continent," said HSBC economist John Butler.

Britain's struggling manufacturing sector also gave fresh cause for concern this week as flat August figures suggested stronger factory output in July had been a blip. Economists had been expecting 1% growth.

No wiggle room?

But the MPC must balance the needs of the world economy and UK manufacturing against the risk of overheating in the currently healthy service sector.

"The Bank of England's hands are tied," according to analysts at SG Economics.

50,000 more jobs are under threat this year if the MPC ignores calls from industry to cut the cost of borrowing

Amicus trade union

"Britain is not in a position to cut rates to aid the global economy, not when its housing market and consumer spending is doing what it's doing," said Daniel Gabay, an economist at investment bank JP Morgan, in London.

Consumers have taken advantage of cheap credit to stack up record levels of debt, raising fears that any sudden economic slowdown could lead to painful repayment problems and housing repossessions.

House prices are continuing to rise, according to two of the UK's biggest mortgage lenders.

The Halifax said they climbed 4.3% in September, while Nationwide reported a jump of 2.1%. A cut in rates would fuel the trend.

Retail sales grew 5% in August compared with a year ago.

Threat to jobs

With low interest rates already providing little incentive to leave money in sitting in bank accounts, savings levels are at a two-year low.

Trades unions and employers have highlighted the risks of an economic slowdown and called for a cut in interest rates to bolster growth.

"The MPC must act now to ensure the UK economy is not blown further off course," said Steve Radley, chief economist at the Engineering Employers' Federation.

The Amicus white collar trade union has warned that "50,000 more jobs are under threat this year if the MPC ignores calls from industry to cut the cost of borrowing".

Although the MPC's minutes showed it had considered a further cut in interest rates - at its August meeting - most economists think it remains an unlikely course of action.