CIPS survey points to peak for rates

Fresh Evidence emerged yesterday that the manufacturing recovery is losing steam, raising expectations that interest rates may have peaked.

A closely watched survey of purchasing managers showed activity in the industrial sector last month rose at the slowest pace in more than a year. The Chartered Institute of Purchasing and Supply's manufacturing index fell to 52.2, the lowest level since July 2003 when the current period of growth began. Roy Ayliffe, at CIPS, said: "The Bank of England is going to think twice about raising interest rates again."

New orders rose at the slowest pace since June last year. Mr Ayliffe said: "There are fears that if fuel prices carry on the way they are, they will hit the world economy. That's dampening down confidence and slowing the orders side."

Oil prices surged past $50 a barrel this week, raising concerns over the impact on global growth. That prompted Gordon Brownto renew his call yesterday for Opec action to bring down oil prices.

Rising oil and metal prices pushed up firms' costs to the highest level since 1995, the CIPS survey showed. Manufacturers' profit margins are being squeezed as most are not able to pass on higher costs to their customers.

Ciaran Barr, an economist at Deutsche Bank, said: "Much stronger data than this is needed if the Bank of England is to raise rates again."

The Bank has raised rates five times since last November, seeking to cool the booming housing market. Higher rates have begun to bite: Nationwide Building Society reported this week that the price of the average home rose only 0.2 per cent in September. The number of mortgage approvals has fallen for three straight months to the lowest level since late 2000, according to Bank of England figures.

Analysts are on balance expecting one more interest rate increase to 5 per cent, while the market is pricing in a less-than-evens chance of another rise.

Last week, a survey by the Confederation of British Industry showed that manufacturing orders fell from the six-year high recorded in August, leading the lobby group to conclude that the industrial recovery remains "stuck in low gear." Mr Ayliffe was more sanguine, saying: "You could argue this is steady growth."