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.

PROMOTED VIDEO
News
video
Life and Style
tech
Sport
Jodie Stimpson crosses the finishing line to win gold in the women's triathlon
Commonwealth games
News
John Barrowman kisses his male “bride” at a mock Gretna Green during the Commonwealth Games opening ceremony
peopleBarrowman's opening ceremony message to Commonwealth countries where he would be sent to prison for being gay
Arts and Entertainment
Jamie Dornan stars as Christian Grey in the Fifty Shades of Grey movie
filmFirst look at Jamie Dornan in Fifty Shades of Grey trailor
Sport
Shinji Kagawa and Reece James celebrate after the latter scores in Manchester United's 7-0 victory over LA Galaxy
football
Life and Style
Phillips Idowu, Stella McCartney and Jessica Ennis
fashionMcCartney to continue designing Team GB Olympics kit until 2016
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Farah returns to the track with something to prove
Commonwealth games
Voices
voicesGood for Lana Del Rey for helping kill that myth, writes Grace Dent
Life and Style
fashion Designs are part of feminist art project by a British student
Arts and Entertainment
The Tour de France peloton rides over a bridge on the Grinton Moor, Yorkshire, earlier this month
film
News
Very tasty: Vladimir Putin dining alone, perhaps sensibly
news
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

Senior Analyst - Financial Modelling

competitive: Progressive Recruitment: This really is a fantastic chance to joi...

Associate CXL Consultant

£40000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: CXL, Triple Po...

Business Anaylst

£60000 - £75000 per annum + BONUS + BENEFITS: Harrington Starr: Business Anal...

Market Administrator (1st line Support, Bloomberg, Reuters)

Negotiable: Harrington Starr: Market Administrator (1st line Support, Bloomber...

Day In a Page

Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears
US Army's shooting star: Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform

Meet the US Army's shooting star

Lt-Col Steven Cole is the man Hollywood calls when it wants to borrow a tank or check a military uniform
Climate change threatens to make the antarctic fur seal extinct

Take a good look while you can

How climate change could wipe out this seal
Should emergency hospital weddings be made easier for the terminally ill?

Farewell, my lovely

Should emergency hospital weddings be made easier?
Man Booker Prize 2014 longlist: Crowdfunded novel nominated for first time

Crowdfunded novel nominated for Booker Prize

Paul Kingsnorth's 'The Wake' is in contention for the prestigious award
Vladimir Putin employs a full-time food taster to ensure his meals aren't poisoned

Vladimir Putin employs a full-time food taster

John Walsh salutes those brave souls who have, throughout history, put their knives on the line
Tour de France effect brings Hollywood blockbusters to Yorkshire

Tour de France effect brings Hollywood blockbusters to Yorkshire

A $25m thriller starring Sam Worthington to be made in God's Own Country
Will The Minerva Project - the first 'elite' American university to be launched in a century - change the face of higher learning?

Will The Minerva Project change the face of higher learning?

The university has no lecture halls, no debating societies, no sports teams and no fraternities. Instead, the 33 students who have made the cut at Minerva, will travel the world and change the face of higher learning
The 10 best pedicure products

Feet treat: 10 best pedicure products

Bags packed and all prepped for holidays, but feet in a state? Get them flip-flop-ready with our pick of the items for a DIY treatment
Commonwealth Games 2014: Great Scots! Planes and pipers welcome in Glasgow's Games

Commonwealth Games 2014

Great Scots! Planes and pipers welcome in Glasgow's Games
Jack Pitt-Brooke: Manchester City and Patrick Vieira make the right stand on racism

Jack Pitt-Brooke

Manchester City and Patrick Vieira make the right stand on racism
How Terry Newton tragedy made iron men seek help to tackle their psychological demons

How Newton tragedy made iron men seek help to tackle their psychological demons

Over a hundred rugby league players have contacted clinic to deal with mental challenges of game