Bank predicts inflation may hit 1997 target

The Bank of England's Inflation Report this week is expected to say that the Government is more likely than not to meet its inflation target within the next 18 months to two years.

However, the Bank will repeat its earlier warnings that it will be looking for money supply growth to fall back after its recent surge.

Figures due today and Thursday are likely to show further reductions in inflation both at the factory gate and on the high street, but other evidence is pointing to a pick-up in consumer spending.

The Chartered Institute of Marketing predicts, in a report published today, that higher growth means inflation will exceed its target and base rates will climb to 9 per cent in 1998.

City analysts suspect that Eddie George, Governor of the Bank of England, disagreed with the Chancellor's decision to cut interest rates by a quarter point to 6.25 per cent in January, following a similar move the previous month. The Bank's Inflation Report will therefore be scrutinised closely for evidence about when the Governor might go along with another base rate reduction.

Economic statistics since the January monetary meeting have been mixed, with alarming signs of weakness in manufacturing and evidence of an increasingly buoyant consumer sector.

The Finance and Leasing Association adds weight to this today with a survey of members showing record store-card credit of pounds 598m in December. Consumers took out more than pounds 20bn from FLA members in 1995, a 16 per increase on 1994.

The Association, which finances nearly a third of UK investment in plant and equipment, said December was also a record month for lending to large- scale infrastructure projects. The December figure of pounds 1.3bn was a staggering 272 per cent higher than a year earlier, although demand for finance for other investment projects was a more modest 14 per cent higher.

Additional anecdotal evidence of buoyant consumer spending is provided by the latest weekly figures from John Lewis. The group reports that trading in its department stores has started the new year on a positive note, while performance at its Waitrose supermarkets has been ''sparkling''. Sales growth for the entire group is approaching double digits.

The outlook for a consumer-led increase in the economy's growth leads the Chartered Institute of Marketing to forecast in a report out today that base rates will have to rise to 9 per cent early in 1998. Although economist Professor Douglas McWilliams forecasts inflation below 2 per cent this year and next, he predicts it will climb to 3.1 per cent two years hence.

But unemployment would fall below two million by then thanks to the pick- up in growth, according to the forecast.

Today's producer price statistics are likely to show that prices paid by manufacturers for their materials were flat last month, thanks to the retreat of the earlier bulge in commodity prices. Prices at the factory gate are expected to have risen in January mainly due to higher excise duties. Economists predict ''core'' output prices, excluding food, drink, tobacco and petrol, will climb modestly.

The headline rate of retail price inflation for January, due on Thursday, is likely to edge down to 2.9 per cent from December's 3.2 per cent. Lower excise duty increases than last year and lower mortgage rates will account for most of this decline.

The target measure, excluding mortgage interest payments, is expected fall to 2.9 per cent from 3.0 per cent in December.

The Government's target states that inflation excluding mortgage interest payments should fall below 2.5 per cent both before the end of the current parliament in May 1997 and over a two-year horizon.

Start your day with The Independent, sign up for daily news emails
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US
Stephen Mangan interview: From posh buffoon to pregnant dad, the actor has quite a range

How Stephen Mangan got his range

Posh buffoon, hapless writer, pregnant dad - Mangan is certainly a versatile actor