Pressure for interest rate rise mounts

Manufacturing output has hit a 10-year high, while inflationary pressures are building across the economy, according to two surveys published today as the Bank of England prepares to meet to set interest rates.

The Bank's Monetary Policy Committee is certain to leave rates on hold but analysts will be alert to any signs that its members are leaning towards the need for a rise.

The MPC was split three ways last month, with David Walton calling for a quarter-point rise and Stephen Nickell for a cut. However, Professor Nickell has now left the MPC and been replaced by David Blanchflower, who has given no indication about how he is inclined to vote.

The EEF, a manufacturing trade body, said its survey of more than 1,100 companies showed that output and orders had expanded at a "rapid" pace.

The number of firms reporting a rise in output over the latest three months exceeded those witnessing a fall by 22 per cent - the highest balance since the end of 1996.

Orders also rose, driven by a widespread surge in orders from overseas, especially the rest of the Europe. Domestic orders, however, were relatively sluggish. Firms were able to raise prices, and took on new staff for the time since the start of 2005. Investment intentions remained positive although well below the levels of the 1990s.

Stephen Radley, the EEF's chief economist, said manufacturers were making the most of the global economic boom - but he urged the MPC not to derail the recovery at UK factories with a rate rise. "In the labour market, on the high street and at the factory gates the signs of inflationary pressure are extremely limited, so any move would be premature," he said.

Asked whether a rise in UK rates or a possible half-point increase by the European Central Bank on Thursday would be more damaging for British businesses, Mr Radley said it was a "hard call". "But given that Europe is our most important export market and that its largest economy, Germany, is facing tax rises, I think a large increase in rates in the rest of the EU would probably be more damaging than a move here," he said.

In a separate report, the accountancy firm BDO Stoy Hayward said its latest trends report highlighted an upturn in economic growth on the back of increased consumer spending and a buoyant housing market.

Optimism among business rose to its highest level in the history of the survey. Its inflation index rose sharply on April's surge in oil prices to a record high. Peter Hemington, a partner at the firm, said: "The most recent available data points to a possible rate rise at some point this year."

Douglas McWilliams, the chief executive at the analysts CEBR, which worked on the survey, said: "The MPC may need to consider a rate rise later in the year in order to cool prices and keep inflation at a manageable level."

However, all 40 economists polled by Reuters before the weekend expected the MPC to leave rates on hold at 4.5 per cent for the 10th month in a row.

Many cited the 2.7 per cent rise in the pound's effective exchange rate in the month since it compiled its May forecasts, and the sharp drop in equity prices. "Both moves should dampen the committee's fear of inflation and keep [rates] on hold," John Butler, the chief UK economist at HSBC, said

Howard Archer, the chief UK economist at Global Insight, said doubts over the longer-term prospects for consumer spending in the wake of a rising tax burden, soaring utility bills, high petrol prices and rising unemployment would keep rates on hold for some time. "Furthermore there are emerging signs that the 'mini boom' in the housing market could be beginning to peter out," he said.

Start your day with The Independent, sign up for daily news emails
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

SThree: Graduate Recruitment Resourcer

£20000 per annum + commission: SThree: Sthree have an exciting opportunity for...

Recruitment Genius: Telesales Executive - OTE £32,000+

£18000 - £32000 per annum: Recruitment Genius: A Telesales Executive is requir...

Ashdown Group: Marketing Manager - B2B, Corporate - City, London

£45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

Neil Pavier: Commercial Analyst

£50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

Day In a Page

General Election 2015: The masterminds behind the scenes

The masterminds behind the election

How do you get your party leader to embrace a message and then stick to it? By employing these people
Machine Gun America: The amusement park where teenagers go to shoot a huge range of automatic weapons

Machine Gun America

The amusement park where teenagers go to shoot a huge range of automatic weapons
The ethics of pet food: Why are we are so selective in how we show animals our love?

The ethics of pet food

Why are we are so selective in how we show animals our love?
How Tansy Davies turned 9/11 into her opera 'Between Worlds'

How a composer turned 9/11 into her opera 'Between Worlds'

Tansy Davies makes her operatic debut with a work about the attack on the Twin Towers. Despite the topic, she says it is a life-affirming piece
11 best bedside tables

11 best bedside tables

It could be the first thing you see in the morning, so make it work for you. We find night stands, tables and cabinets to wake up to
Italy vs England player ratings: Did Andros Townsend's goal see him beat Harry Kane and Wayne Rooney to top marks?

Italy vs England player ratings

Did Townsend's goal see him beat Kane and Rooney to top marks?
Danny Higginbotham: An underdog's tale of making the most of it

An underdog's tale of making the most of it

Danny Higginbotham on being let go by Manchester United, annoying Gordon Strachan, utilising his talents to the full at Stoke and plunging into the world of analysis
Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police

Steve Bunce: Inside Boxing

Audley Harrison's abusers forget the debt he's due, but Errol Christie will always remember what he owes the police
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