Industry leaders fear soaring pound will lead to higher rates

Industry leaders yesterday voiced renewed concern over the strength of sterling as the pound rose to its highest level for 34 months amid speculation that the Chancellor, Kenneth Clarke, will have to raise interest rates again soon.

Meanwhile, new economic data released yesterday provided further support for the wager in the markets that base rates are set to go up with both money supply and demand for manufactured consumer goods growing strongly in November.

Both the money supply and the demand for manufactured consumer goods grew strongly again in November, showing that the consumer boom is continuing to swell and putting pressure on Kenneth Clarke to make a pre-emptive strike against inflationary pressures.

Sterling briefly passed the DM2.60 level before falling back slightly to DM2.5975 - still its strongest showing since February 1994. Meanwhile it rose by 0.5 to 94.5 on the trade-weighted index.

The Confederation of British Industry said: "The message increasingly coming back from our members is that the strength of the pound is very worrying and will increasingly jeopardise our export competitiveness."

Alan Armitage, chief economist at the Engineering Employers Association, said: "Clearly sterling's appreciation is going to make life harder in export markets. Manufacturers like the competitive edge that a lower currency brings and any appreciation in the pound will hurt."

He said, however, that it was too early to say whether the level of new orders was being affected while many exporters were already well- hedged against the stronger pound.

In the markets there seemed little end in sight to the pound's surge.

"Everybody loves sterling," said Joe Prendergast, currency strategist at Merrill Lynch. Speculators are betting that Mr Clarke will have to raise interest rates soon because economic growth and inflationary pressures are rising.

The Chartered Institute of Purchasing and Supply (CIPS) reported in its latest survey yesterday that the stronger pound had dampened overseas demand for certain goods as export prices rise.

However, the stronger pound also makes it cheaper for manufacturers to import components and raw materials - many of which are priced in dollars - thus helping to offset the effect on exports.

Despite the pressures on exporters, demand for British manufacturing in other areas remains strong. The Purchasing Managers' Index, produced by the CIPS to reflect the state of activity in the manufacturing sector, remained roughly stable at 54.4, compared with 54.5 in October.

Meanwhile, rising domestic demand is more than compensating for any squeeze on orders from abroad - particularly consumer demand. The CIPS index for output and new orders among manufacturers of consumer goods showed the sharpest rise of any sector.

Manufacturers of investment goods, on the other hand, saw new orders (for new plant and machinery) slow considerably in November, reflecting continued business reluctance to invest.

Adam Cole of HSBC James Capel said the figures showed that "growth remains heavily skewed towards consumers rather than investment. Given that the Budget shifted the tax burden away from consumers and onto businesses, this is bad news for medium-term growth".

Figures from the Bank of England on the money supply reinforced the evidence of strong consumer spending. MO, which shows the amount of notes and coins in circulation, grew by 7.5 per cent in the year to November, up marginally on the 7.4 per cent in the year to October.

This is far above the Government's monitoring range for M0 of 0-4 per cent.

Suggested Topics
PROMOTED VIDEO
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
Life and Style
techCould new invention save millions in healthcare bills?
Voices
A meteor streaks across the sky during the Perseid Meteor Shower at a wind farm near Bogdanci, south of Skopje, Macedonia, in the early hours of 13 August
voicesHagel and Dempsey were pure Hollywood. They only needed Tom Cruise, says Robert Fisk
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
News
Jermain Defoe got loads of custard
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

C#.NET Server Side Developer (C#, XML, WCF, Unit Testing,SQL)

£30000 - £40000 per annum + benefits+bonus+package: Harrington Starr: C#.NET ...

Junior Database developer (SQL, T-SQL, Excel, SSRS)

£20000 - £30000 per annum + benefits+bonus+package: Harrington Starr: Junior D...

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
Mafia Dons: is the Camorra in control of the Granite City?

Mafia Dons: is the Camorra in control of the Granite City?

So claims an EU report which points to the Italian Mob’s alleged grip on everything from public works to property
Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Emmys look set to overhaul the Oscars as Hollywood’s prize draw

Once the poor relation, the awards show now has the top stars and boasts the best drama
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Radio 1 to hire 'YouTube-famous' vloggers to broadcast online

Radio 1’s new top ten

The ‘vloggers’ signed up to find twentysomething audience
David Abraham: Big ideas for the small screen

David Abraham: Big ideas for the small screen

A blistering attack on US influence on British television has lifted the savvy head of Channel 4 out of the shadows
Tim Howard: I’m an old dog. I don’t get too excited

Tim Howard: I’m an old dog. I don’t get too excited

The Everton and US goalkeeper was such a star at the World Cup that the President phoned to congratulate him... not that he knows what the fuss is all about
Match of the Day at 50: Show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition

Tom Peck on Match of the Day at 50

The show reminds us that even the most revered BBC institution may have a finite lifespan – thanks to the opposition
Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born