Eddie George worried over windfalls
Thursday 05 June 1997
His caution, coupled with a survey showing an eleventh consecutive rise in trading conditions in the service sector, had analysts predicting a quarter point rise in interest rates would be announced tomorrow. A two- day meeting of the monetary policy committee starts today, its first since Gordon Brown gave the Bank operational independence to set interest rates.
Simon Briscoe, economist at Nikko Europe, said: "This survey confirms what we already knew, that the service sector continues to grow strongly. The strength of the survey will increase expectations that the new monetary committee will tighten policy at this week's meeting."
The UK Purchasing Managers Report on Services, published by the Chartered Institute of Purchasing and Supply (CIPS), showed companies experiencing higher demand both at home and overseas. Employment in the service sector, which already accounts for three-quarters of all British jobs, grew sharply in May and severe skills shortages started to emerge.
According to CIPS, rising payrolls have not kept pace with outstanding work, with many companies saying they did not have the capacity to meet the growth in demand. Higher salary levels needed to retain staff and attract new recruits also led to a rise in costs in May.
There was some good news on the inflation front, however. While some businesses had been able to pass on higher input prices, competition meant many others were unable to charge higher prices.
Peter Thomson, director general of CIPS, said: "Growth on this scale in the UK service sector beats anything we have seen lately in manufacturing. Service companies do seem to be suffering from skill shortages, which are driving up their costs. Though there is certainly a developing trend of firms passing on these costs to their customers, inflationary pressures are being subdued by competition."
Mr George sent a tremor through foreign exchange markets when he appeared to be talking down the pound as he commented on the complications of setting interest policy. He said the new monetary policy committee would discuss the contradictions in setting policy against a background of rising consumer demand, which might require higher rates, and a strong pound, which would be exacerbated by an increase.
He said: "The immediate problem is to balance the degree of tension between the pressure of domestic demand, which has been running a bit above a sustainable rate, with the exaggerated strength of the exchange rate." The pound fell almost 2 pfennigs to below 2.82 marks at one stage after earlier reaching a fresh four-and-a-half year high of 2.8331 marks.
Bonds also suffered. On Liffe, the September gilt futures contract was 11/32 lower at 11312/32, while the September short sterling futures contract was 0.04 lower at 93.16.
- 1 Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
- 2 Pope Francis issues top 10 tips for happiness – including don’t try to convert other people
- 3 Arturo Vidal to Manchester United: Midfielder set to force through move to Louis van Gaal's Red Devils - reports
- 4 Disney heiress Abigail disowns her share of family profits in West Bank company
- 5 Israel's propaganda machine is finally starting to misfire
Russell Brand accuses FOX News anchor Sean Hannity of terrorism after aggressive Israel-Gaza debate
Pope Francis issues top 10 tips for happiness – including don’t try to convert other people
Sabina Altynbekova, the girl branded 'too good looking' for volleyball, says social media obsession with her is a 'bit much'
Justin Bieber posts Instagram photo of Orlando Bloom crying after Ibiza fight 'over Miranda Kerr'
Disney heiress Abigail disowns her share of family profits in West Bank company
The secret report that helps Israel hide facts
Land for gas: Merkel and Putin discussed secret deal could end Ukraine crisis
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Richard Dawkins tweets: 'Date rape is bad, stranger rape is worse'
Boozy, ignorant, intolerant, but very polite – Britain as others see us
- < Previous
- Next >
iJobs Money & Business
£20000 - £24000 per annum: Harrington Starr: A leading provider of web based m...
£28000 - £32000 per annum: Ashdown Group: Secretary (Sales Team Support) - Mat...
Competitive (DOE): Guru Careers: We are looking for an Assistant Management Ac...
£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...