Markets hold breath as G7 meet

LIKE RABBITS frozen in a car's headlights, the financial markets stood still yesterday as they waited for the outcome of key speeches and meetings later this week.

Deputy finance ministers from the Group of Seven countries are due to finish meeting in Paris today, while Alan Greenspan, the Federal Reserve chairman, will give testimony to a Congressional committee this afternoon.

In London tomorrow the Chancellor of the Exchequer and the Governor of the Bank of England will give their annual Mansion House speeches, expected to set a tough tone on both the fight against inflation and government spending policy in the year ahead.

The yen remained weak against the dollar, briefly passing the 141 level before recovering in later trading. It remained below the 140 level, but deep pessimism about prospects for the Japanese economy was tempered by fear that the G7 would decide to intervene to prop up the flagging currency.

The markets will also be on the alert for any signal from Mr Greenspan about the need for a US interest rate rise. But for the economic crisis in Asia the Fed would almost certainly have already increased borrowing costs.

Larry Summers, the deputy US Treasury Secretary, had no comment yesterday and insisted there would be no statement after the informal G7 meeting. But Hikaru Matsunaga, Japan's finance minister, said: "We have strong worries over excessive yen weakness. We will take decisive measures as needed in co-operation with the G7 nations."

Shares in Tokyo staged a recovery yesterday, with the Nikkei index climbing 235 points to 15,530.17. Big exporters led the rise, with the weak yen expected to boost their performance.

While a US rate rise is widely expected, the uncertainty over the interest rate outlook in the UK increased yesterday with official figures showing that manufacturing had crept out of recession in the three months to April. A surge in energy output, to a record level, took growth in total industrial production even higher.

Although the unexpected rise in April, and upward revisions to earlier figures, did nothing to alter the fact that manufacturing is stagnating, they did take analysts by surprise. While most were confident until last week's shock interest rate rise that the cost of borrowing had reached its peak, few are so sure now.

However, business surveys suggest that the outlook for industry remains bleak. Michael Saunders, UK economist at Salomon Smith Barney, said: "Manufacturing is going to weaken again."

Manufacturing output edged up by 0.1 per cent in April, and its level in March and April was also revised up. Although it remains a fraction lower than a year ago, it has climbed by 0.9 per cent in the latest three months - and therefore technically is no longer in recession.

A 7.1 per cent leap in electricity, gas and water output during April, along with a 3.4 per cent rise in oil and gas extraction, meant total industrial production rose by 1 per cent during the month to a level 1 per cent higher than a year earlier. The energy surge is expected to prove erratic. The Office for National Statistics said the trend in manufacturing was flat while trend growth in total industrial production was 0.5 per cent.

Official figures next week for retail sales and average earnings will be seen as a more important signal about the direction of the next interest rate move. The policy debate both inside and outside the Bank of England hinges on whether the non-manufacturing parts of the economy are slowing down fast enough to keep inflation on target.

Start your day with The Independent, sign up for daily news emails
News
i100
Arts and Entertainment
Billie Piper as Brona in Penny Dreadful
tvReview: It’s business as usual in Victorian London. Let’s hope that changes as we get further into the new series spoiler alert
Life and Style
A nurse tends to a recovering patient on a general ward at The Queen Elizabeth Hospital in Birmingham
health
News
science
Arts and Entertainment
No Offence
tvReview: No Offence has characters who are larger than life and yet somehow completely true to life at the same time spoiler alert
News
Chuck Norris pictured in 1996
people
ebooks
ebooksA celebration of British elections
Arts and Entertainment
Sarah Lucas, I SCREAM DADDIO, Installation View, British Pavilion 2015
artWhy Sarah Lucas is the perfect choice to represent British art at the Venice Biennale
News
A voter placing a ballot paper in the box at a polling station
i100
News
people
Arts and Entertainment
The Queen (Kristin Scott Thomas) in The Audience
theatreReview: Stephen Daldry's direction is crisp in perfectly-timed revival
Sport
football
  • 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

SThree: Trainee Recruitment Consultant - Swiss Banking and Finance

£20000 - £25000 per annum + Uncapped commission: SThree: Can you speak German,...

Ashdown Group: Marketing Executive - 6 month FTC - Central London

£25000 - £30000 per annum + benefits: Ashdown Group: An exciting opportunity f...

Ashdown Group: Junior Project Manager (website, web application) - Agile

£215 per day: Ashdown Group: Junior Project Manager (website, web application ...

Guru Careers: Software Engineer / Software Developer

£40-50K: Guru Careers: We are seeking an experienced Software Engineer / Softw...

Day In a Page

General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'
Sarah Lucas is the perfect artist to represent Britain at the Venice Biennale

Flesh in Venice

Sarah Lucas has filled the British pavilion at the Venice Biennale with slinky cats and casts of her female friends' private parts. It makes you proud to be a woman, says Karen Wright
11 best anti-ageing day creams

11 best anti-ageing day creams

Slow down the ageing process with one of these high-performance, hardworking anti-agers
Juventus 2 Real Madrid 1: Five things we learnt, including Iker Casillas is past it and Carlos Tevez remains effective

Juventus vs Real Madrid

Five things we learnt from the Italian's Champions League first leg win over the Spanish giants
Ashes 2015: Test series looks a lost cause for England... whoever takes over as ECB director of cricket

Ashes series looks a lost cause for England...

Whoever takes over as ECB director of cricket, says Stephen Brenkley
Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power