Industrial recovery sees jump in input prices

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The Independent Online
RECOVERY IN the manufacturing sector last month saw the prices paid for materials jump to a four-year high, according to an industry survey yesterday. The news made a rise in interest rates after this week's Monetary Policy Committee (MPC) meeting more likely in the eyes of most City economists.

The MPC said yesterday that it would not start to indicate its "bias" towards future interest rate moves, as recommended by MPs on the Treasury Committee. In a written response to a recent Treasury Committee report, it said minutes of each interest rate-setting meeting gave the full range of members' views. "To try to summarise those views in terms of a single statement of bias would not be helpful," the response added.

But the MPC announced it would start to commission opinion polls on inflation and interest rates, run a monetary policy competition for schools and launch an educational "virtual" Bank of England on the Internet. The aim would be to "build a constituency for low inflation".

Meanwhile, the Treasury Committee said it would be questioning members of the MPC later this month about the row between the internal and external members over research support. Eddie George, the Governor, his deputy Mervyn King, chief economist John Vickers and external members Sushil Wadhwani and Charles Goodhart are likely to appear.

Yesterday's survey of purchasing managers weighed in on the side of a rise in rates from their current level of 5.25 per cent. It showed activity edging up for the fifth-month running in October, returning to the highest level since November 1997. Manufacturers also said they planned to expand employment for the first time in nearly two years.

The catch was a jump in the prices paid for materials, which climbed to the highest since September 1995. The prices index reached 56.2, up sharply from 54.4.

The report from the Chartered Institute of Purchasing and Supply said: "The expansion of global demand for many commodities again put pressure on input prices." More than a quarter of the panel of respondents had paid more for their inputs.

Richard Iley at ABN Amro said the figures showed manufacturing was firmly out of recession. "The dual economy dilemma is ending and price pressures are building."

Only about a quarter of the economists questioned in a Reuters survey thought interest rates would not rise this week. Dharshini David at HSBC said manufacturers might not be able to pass on higher raw materials prices to their customers, but added: "There is nothing in this survey to prevent a rate hike this week." The MPC will also have a preliminary view of official industrial output figures, due on Friday.

The European Central Bank is also widely expected to raise interest rates after its council meeting on Thursday. Yesterday Wim Duisenberg, the ECB president, said: "Our tightening bias has slightly strengthened since July." His remarks took the euro up from Friday's $1.0431 to $1.05.