July 6 (Bloomberg) -- The Bank of England should lower its benchmark interest rate this week in response to a deceleration in economic growth and a slowdown in the property market, the Confederation of British Industry said.

The central bank begins its monthly two-day rate-setting meeting today and will announce its decision tomorrow at midday in London. The bank's Monetary Policy Committee raised rates five times between November 2003 and August 2004 to 4.75 percent.

``As there still seems little risk of inflation, the time for action is now,'' said CBI Director-General Digby Jones in the text of speech to be given in northern England this evening. There are ``troubling signs of decline in the housing market where confidence is everything. Such a loss of confidence is something the U.K. economy cannot afford.''

U.K. growth lagged behind the euro region for the first time in more than four years during the first quarter as the increase in consumer spending slowed and manufacturing contracted, government statistics showed last week. Inflation in May stayed at a seven-year high of 1.9 percent for the third month running.

Opinion on the rate-setting committee has been divided on how to respond, with two members, including the bank's chief economist Charles Bean, last month voting to lower rates. The other seven policy makers favored leaving borrowing costs unchanged.

House Prices Falter

House prices rose at slowest annual pace in almost nine years in June, the Nationwide Building Society said June 30. The British Retail Consortium said July 5 that sales in stores open at least a year fell 0.5 percent last month following a 2.4 percent slide in May and a 4.7 percent drop in April.

The CBI, which represents 200,000 companies including oil company BP Plc and engine maker Rolls-Royce Plc, also highlighted concerns about the strength of corporate profitability in the U.K. after the Office for National Statistics figures released yesterday.

While the net rate of return for service companies rose to 17.5 percent in the first quarter from 15.9 percent in the previous three months, the rate for manufacturers slid to 6 percent from 7.7 percent, the ONS reported.

``The loss of momentum since Spring 2004 is totally consistent with a structural decline in company profits,'' the CBI's Jones said. A rate cut would be ``a prudent and timely response.''

To contact the reporter on this story: Sam Fleming in London at sfleming5@bloomberg.net

Last Updated: July 5, 2005 19:08 EDT