CBI gloom dispels rate rise fear
Wednesday 26 July 1995
Growth has slowed sharply to its lowest rate for 15 months and business optimism has fallen for the first time since 1992. These unexpectedly gloomy results from the latest Confederation of British Industry survey remove any lingering risk of an increase in base rates when the Chancellor, Kenneth Clarke, meets Eddie George, Governor of the Bank of England, tomorrow.
City economists said the slowdown might persuade Mr George to withdraw his advice for a base rate rise. Michael Saunders, UK economist at the investment bank Salomon Brothers, said: "This is the single most important piece of information about the economy since the last monetary meeting."
The Governor will also take to tomorrow's meeting the Bank's new inflation forecast, due to be published next week. This is expected to be slightly less gloomy than the May report, which predicted inflation approaching the 4 per cent ceiling early next year.
Published minutes of the May and June meetings show that Mr George referred to the buoyancy of earlier CBI survey results when recommending higher interest rates. His advice is believed to have been the same at the beginning of this month. The latest survey brings the CBI's figures more closely into line with very weak official statistics for manufacturing output.
Andrew Buxton, chairman of the CBI's economic affairs committee, said: "Clearly, interest rates should not rise, but equally there is no justification for a cut. We should sit on the fence and see if the downturn is real or just a blip."
Another sign of the retreat of inflationary dangers was a significant rise in manufacturers' investment intentions. The weakness of industrial investment has been one of the disappointments of the recovery.
But the balance of firms planning to invest in plant and equipment is the highest since April 1989, with the investment directed towards expansion of capacity. Mr Buxton said: "This improvement will need to be sustained if we are to expand our manufacturing base and narrow the investment gap with our major competitors."
The survey suggested that immediate price pressures have stabilised, even though costs have risen by more than expected. The balance of firms expecting to raise prices was unchanged in July and well below the January peak.
The CBI said competitive pressures were forcing firms to squeeze profit margins rather than raise prices. The next few months seem likely to squeeze margins further. New orders increased by less than expected and at the slowest rate since early 1994. This mainly reflected a steep drop in domestic demand.
Export growth slowed in the three months to July compared with the previous quarterly survey but remained stronger than domestic orders. Seasonal effects exaggerated the weakness of the survey results, but even after adjusting for the seasonal ebb and flow of business optimism, there has been a dramatic fall in confidence so far this year.
Comment, page 17
- 1 Notting Hill Carnival: Woman shares selfie after being ‘punched in face for telling man to stop groping her’
- 2 Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
- 3 Daily Show's Jon Stewart destroys Fox News for its Ferguson coverage
- 4 When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- 5 Terror threat level raised to severe as PM warns Isis risk could last for decades
Keira Knightley topless: Usually conservative actress does own take on #Freethenipple campaign for Interview Magazine
YouTube video posted by Isis militants shows 'execution of 250 Syrian soldiers'
Botched ice bucket challenge leaves man critically injured after plane drops hundreds of gallons of water
Terror threat level raised to severe as PM warns Isis risk could last for decades
Isis 'A Message in Blood' video shows beheading of Kurdish man in Iraq
Robin Williams Emmys tribute led by Billy Crystal criticised for including 'racist' joke about Muslim woman
The Rotherham child abuse scandal is a tale of apologists, misogyny and double standards
Scottish independence TV debate: Pumped-up Alex Salmond bounces back in bruising second round against Alistair Darling
Do you realise just how foolish the UK looks?
Ukip Douglas Carswell defection: Tory MP jumps ship to join Nigel Farage
When elitism grips the top of British society to this extent, there is only one answer: abolish private schools
- < Previous
- Next >
iJobs Money & Business
£50000 - £80000 per annum + benefits+bonus+package: Harrington Starr: Data Sci...
£450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...
£32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...
£200 - £250 per day + competitive: Orgtel: KYC Analyst, Key Banking Client, Bi...