Ahead of tomorrow's meeting between Kenneth Clarke, the Chancellor, and Eddie George, the Governor of the Bank of England, the Purchasing Managers' Survey revealed the strength of price pressures as sterling's recent weakness feeds through to import prices. One of the key monetary aggregates, M0, is also continuing to rise well outside its monitoring range.
But with Nationwide Building Society reporting no change in house prices in March compared with last year and activity in the housing market well down on 1994, the City still believes a rise will be postponed until May at the earliest.
This would give the authorities more time to assess the underlying strength of the economy as well as a further chance to see if sterling can regain some of the ground it has lost since the last increase in rates in February. Yesterday it weakened against both the mark and the dollar.
The prices index formulated from the replies of purchasing managers in 290 industrial companies rose in March to 75.0, within a hair's breadth of its all-time high. There was upward pressure on prices across the board, reflecting capacity constraints as well as the recent fall in sterling. The level of the index, which records the prices of semi-manufactures as well as inputs, reveals potential inflation in the pipeline.
So far, however, attempts to push through price increases in the high street have met with stiff consumer resistance and retail sales were flat between December and February. One concern for Mr George and the Chancellor may be the continuing fast growth of M0, a measure of the money supply which usually shows a close relationship with retail sales.
The provisional estimate for March rose to an annual rate of 7 per cent, well in excess of the monitoring range of 0-4 per cent, suggesting that retail sales may rebound in March. However, the increase was distorted by a big increase in banks' operational deposits with the Bank, an erratic item.
The overall purchasing managers' index, which records the general level of activity, fell back marginally but continues to paint a picture of robust expansion of manufacturing that accords with the CBI's recent survey. However, official statistics have shown both manufacturing and industrial production marking time since September. Eyes will now be fixed on Thursday's publication of the industrial production index for February to see if it confirms the surveys' evidence.
Meanwhile, the US National Purchasers' Managers' Index fell sharply and the price index also weakened. With consumer spending rising at its slowest rate in 10 months, this was further evidence for some analysts that the Federal Reserve was successfully engineering a soft landing for the US economy. But the revelation that the Fed had made its first intervention in Asia for three years failed to support the dollar, which sank in trading to a post Second World War low against the yen.