German inflation figures deal blow to UK recovery hopes

INDEPENDENT British economic forecasters have sharply downgraded their expectations for recovery this year.

The Treasury's latest compilation of 31 forecasters inside and outside the City showed that growth predictions for this year have on average been cut back to 0.4 per cent in June from 0.9 per cent in May.

Even so, the latest average is thought to be well above the Treasury's latest unpublished estimate, which is believed to show that national output in 1992 will be less than the previous year.

Forecasters have also upgraded predictions for the public sector borrowing requirement. Average expectations now centre on a PSBR of pounds 30.3bn for fiscal 1992, up from pounds 28.2bn in May.

Despite the widespread reduction of growth forecasts there appears to be little chance of a reduction in base rates for some months to come.

Official figures out yesterday showed that western German inflation slowed to 4.3 per cent in June from 4.6 per cent in May after a 0.3 per cent rise in the monthly cost of living index. The slight easing in inflationary pressures is unlikely to lead to an early reduction in Germany's interest rates.

German economists said they did not expect a cut in the key Lombard rate from 9.75 per cent - the effective floor for British rates - much before the end of the year. The figures were in line with expectations and are unlikely to influence the Bundesbank, which yesterday stepped up its campaign to dissuade the markets from holding premature hopes of lower German rates.

Gunter Storch, a member of the Bundesbank directorate, said high wages and prices and an 'exceptionally' strong expansion of German money supply meant 'there is not room for easier monetary policy and lower interest rates'.

Inflation in western Germany is expected to ease to around 3.5 per cent in July, when an increase in petrol prices in 1991 drops out of the comparison.

But the Bundesbank is expected to focus chiefly on money supply growth and is not thought likely to contemplate easing monetary policy until the annualised expansion slows to below 7 per cent from the present 9 per cent.

Official British figures yesterday indicated that consumers were increasingly cautious in the first quarter - perhaps because of the approaching general election - but companies began to contemplate recovery.

The personal savings rate rose by 1.5 percentage points to 11.5 per cent, the highest since 1982, despite an increase in real after-tax income of 1 per cent.

Bonus payments ahead of the election, higher dividends and increased capital spending widened the financial deficit of industrial and commercial companies to pounds 4bn from pounds 1.1bn in the previous three months.

Commentary, page 23

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex
A propaganda video shows Isis forces near Tikrit
voicesAdam Walker: The Koran has violent passages, but it also has others that explicitly tells us how to interpret them
Arts and Entertainment
Victoria Wood, Kayvan Novak, Alexa Chung, Chris Moyles
tvReview: No soggy bottoms, but plenty of other baking disasters on The Great Comic Relief Bake Off
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all