Leading forecaster predicts rate rise

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The Independent Online

The strength of the economy will force the Bank of England to raise interest rates, one of the UK's most respected independent forecasters said yesterday.

The strength of the economy will force the Bank of England to raise interest rates, one of the UK's most respected independent forecasters said yesterday.

The National Institute for Economic and Social Research said the economy grew 0.9 per cent in the three months to July, the same rate as seen in June and maintaining the strongest rate for 10 months. "This reinforces our view that further rate rises remain likely," said Martin Wheale, the NIESR's director.

The report came as official figures for the industrial sector showed that manufacturing output rose more than expected in June. But separate figures showed that the housing market and retail sales growth both suffered a slowdown last month.

Manufacturing industry grew by 0.2 per cent in June, taking the annual growth rate to 2.1 per cent. Analysts had expected zero monthly growth. The driving force was the manufacture of mobile phones, which rose 7.5 per cent between May and June, leaving annual growth over 40 per cent. However, transport equipment fell 4.7 per cent as motor vehicle output shrank 6.6 per cent, while other traditional industrial sectors also fell.

Halifax, the mortgage bank, said annual house price inflation fell to 8 per cent in July from 9.2 per cent in June and a peak of 16 per cent in January. On the high street, the British Retail Consortium said retail sales growth slowed to 4.7 per cent in July from 5.2 per cent in the previous month. "At present there are no signs of either boom or slump," said Bridget Rosewell, its chief economic adviser.

Jonathan Loynes, chief UK economist at Capital Economics, said: "With signs of the domestic economy losing some of its steam, we see no reason why modest growth in industry should prompt the Bank into raising rates again." But Richard Iley, at ABN Amro, said the manufacturing figures supported a surprisingly strong survey last week from the Chartered Institute of Purchasing and Supply. "Interest rates will have to rise further to help cool the economy," he said.

There was little impact on the financial markets, which are waiting for the Inflation Report published by the Bank tomorrow.

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