Hopes of an interest rate cut by the Bank of England next week have faded following the latest data from the UK manufacturing sector. While overall growth was gloomy, firms hiked prices at the fastest rate on record as they tried to pass on to customers the surging cost of raw materials exacerbated by the sterling's weakness against the euro, according to April's Chartered Institute of purchasing and supply statistics. Its purchasing manager's index slipped from 51.3 to 51 last month in two years. The output price index rose from 60.6 in March to 61.9 while the input price index increased from 76.7 to 78.5 the second highest since the surveys began, as the cost of raw materials continued to rise.

'This is unlikely to make the MPC cut rates any faster, especially when price pressures are still strengthening' said Paul Dales economist at consultancy capital economics. James Knightley, economist at Dutch bank ING agreed. 'The BoE, excluding David Blanchflower, will stick to its hawkish line for now' he said. Meanwhile the office for National Statistics revealed that demand for homes plunged by 27 per cent during the first quarter of 2008, leading to an 8 per cent decline in overall orders for new construction. GBP/USD currently trading at 1.9827, 8:00 GMT.

Banks remain reluctant to lend to one another even after the Federal Reserve cut its benchmark rate a quarter point and Treasury Secretary Henry Paulson said the credit-market crisis is ``closer to the end.'' The London interbank offered rate for three-month dollar loans fell 7 basis points to 2.78 percent today, the BBA said. That's still 78 basis points more than the Fed's target rate, or within 8 basis points of the spread's widest level in December peak. In the first half of 2007, the gap averaged 11 basis points. Money-market rates began surging last year as the fallout from the U.S. housing slump left banks wary of lending to all but the safest borrowers.

The central banks of the U.S., the euro region, the U.K., Switzerland and Canada started a concerted program of cash auctions in December to revive lending as the credit shortage threatened to undermine economic growth.``Libor is still elevated,'' said Stuart Thomson, a money manager at Glasgow, Scotland-based Resolution Investment Management Ltd., which oversees about $46 billion in bonds. ``The credit crunch isn't over and it will probably intensify again.'' EUR/USD currently trading at 1.5471, 8:10 GMT.

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