Forecasters see inflation `nightmare' if rates do not rise
Monday 26 January 1998
The Ernst & Young Item Club, which uses the Treasury's own model for its forecasts, says that if the Bank does not engineer a soft landing for the economy with one more tightening of the ratchet now, it will have to raise rates to 8 per cent by the summer. This alarming warning is based on the prospect that consumer spending will not slow rapidly enough while the pound squeezes exports by staying stubbornly high.
John Gaster, chief economist of the Item Club, said: "Everything hangs on the consumer and the pound - if both stay strong for much longer, we shall be in for a bumpy ride."
Mr Gaster thinks the Bank of England will bite the bullet in February or March. In that case, he forecasts a reasonably gentle slowdown to 2.2 per cent growth this year and 1.9 per cent in 1999. Underlying inflation would stay around 2.8 per cent.
But in the nightmare alternative, slightly higher growth this year would be followed by a sharp dive to 1.5 per cent growth next year, and underlying inflation would climb to 3.6 per cent, outside the Government's target range.
The Item Club's view about where the risks lie, however, differs from many other economists. Others expect the impact of the Asian crisis to cool the British economy rapidly without the need for higher rates.
Actress sees off speculation about her appearance in an amazing way
Review: Despite an uphill climb to see Jake Bugg in action, his performance is notably flat
Powerful images of strays taken moments before being put down
- 1 Renee Zellweger on plastic surgery reports: 'I'm living a more fulfilling life and I'm thrilled that perhaps it shows'
- 2 Salisbury ranked seventh-best city in the world to visit in Lonely Planet’s Best in Travel 2015
- 3 Disney announces new female-led film Moana
- 4 Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
- 5 Russell Brand threatened with arrest after filming outside Fox News headquarters
Australian jihadist Abdullah Elmir vows Isis will fight 'until black flag is on the top of Buckingham Palace'
Renee Zellweger on plastic surgery reports: 'I'm living a more fulfilling life and I'm thrilled that perhaps it shows'
Chicago voter tells Obama 'don't touch my girlfriend' – Obama stays super smooth
Oscar Pistorius: The brutal prison life that awaits disgraced athlete
Banksy not arrested: Internet duped by fake report claiming artist's identity revealed
Cameron is warned 'no possibility' of UK reducing immigration and that bid to bring in quota on migrant workers would be illegal
Residents should throw a street party and mix with immigrant neighbours, councils told
Russell Brand threatened with arrest after filming outside Fox News headquarters
Of course, teenage girls need role models – but not like beauty vlogger Zoella
London bus driver 'kicks gay couple off for kissing'
Jose Manuel Barroso warns David Cameron against making 'historic mistake' over immigration reforms
iJobs Money & Business
£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...
£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...
£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...
£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...