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 The man who filmed the Freddie Gray video has been arrested at gunpoint
- 3 Top Gear: Jodie Kidd, Philip Glenister and Guy Martin 'in advanced talks' to join show
- 4 Frankie Boyle on Scottish independence: 'In the Interests of Unity, F**k Off'
- 5 How to gain confidence and maximise your sexual potential
Boston Marathon runner's search for mystery man she kissed ends with letter from his wife
Frankie Boyle on Scottish independence: 'In the Interests of Unity, F**k Off'
Italian police 'reveal' what Jesus looked like as a young boy
Mysterious 'X-Files' sounds heard miles above the Earth
Met Gala 2015: Beyoncé manages to out-skimp Rihanna, Miley and Kim Kardashian combined with near-naked ensemble
In defence of liberal democracy
The Rothschild Libel: Why has it taken 200 years for an anti-Semitic slur that emerged from the Battle of Waterloo to be dismissed?
General Election 2015: UK will be 'run for the wealthy and powerful' if Tories retain power, Labour warns
General election live: SNP suspends two members for disrupting Labour rally
Schools forced to act as 'miniature welfare states' with teachers buying underwear and even haircuts for poor pupils
Andy McSmith's Sketch: Feisty audience is the real star of an enlightening show
iJobs Money & Business
£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...
£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...
£215 per day: Ashdown Group: Junior Project Manager (website, web application ...
£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...