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
Start your day with The Independent, sign up for daily news emails
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Sport
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins wins the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Jim Davidson performs his comedy show at Edinburgh Festival 2014
TV
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
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

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor