The results of the Confederation of British Industry's monthly survey backed Gordon Brown's decision to raise interest rates by a quarter-point earlier this week, despite a subdued industrial performance. City experts said yesterday that the economy was still expanding fast enough to require further action, whether through tax or interest rate increases.
"This will keep up the pressure for further tightening of monetary or fiscal policy in coming months," said Michael Saunders at Salomon Brothers. Industry is keen for taxes to take the strain for fear higher interest rates will keep the pound strong.
British Steel, one of the companies hardest hit by sterling's strengthening, yesterday warned that it was putting 8.5 million jobs at risk.
In a briefing note sent to ministers and MPs in steel constituencies, its chairman, Sir Brian Moffat, called on the Chancellor, Gordon Brown, to introduce measures that would help bring sterling down to a "sustainable level" of DM2.40-DM2.50.
The note says that the UK's policy of controlling inflation largely through interest rates needed to be changed urgently. If sterling remained at current levels, the deterioration in the competitiveness of the UK economy would accelerate.
British Steel repeated the call by the CBI for a balanced approach to inflation, using both interest rates and fiscal measures aimed at those sectors of the economy where inflationary pressures were evident.
Separately, industrial conglomerate BTR became the latest victim of the pound, warning exchange rates had knocked pounds 35m off operating profits in the first half of the year.
Highlighting the contrasting fortunes of exporters and consumers, the CBI reported in its distributive trades survey yesterday that the annual rate of increase in retail sales volumes in April was the highest since November, and expected to continue into May.
The balance of retailers reporting sales volumes higher rather than lower than a year ago was 42 per cent, up from 33 per cent in March and 32 per cent a year earlier.
The sharpest rises were in furniture and carpets, and clothing, with footwear sales also strong.
Motor traders also reported an increase in annual sales volumes, confounding downbeat expectations after a drop in March.
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