Pressure on rates despite pay data

Pressure for an early post-election hike in interest rates will intensify this week despite new evidence from the Confederation of British Industry showing that pay rises remain muted.

Fierce price competition and the strong pound kept pay awards in the manufacturing industry to 3.2 per cent in the three months to March, according to today's CBI survey, the same rate as the previous quarter. Surprisingly, the CBI said pay rises in the buoyant service sector dropped slightly, from 3.8 to 3.7 per cent.

The figures suggest that fears of a wage spiral as the economy improves may have been overblown. Last week official figures showed average earning increases edged up to 5 per cent in February from 4.75 per cent the month before.

The statistics are at odds with the Bank of England's increasing concern about inflationary pressure in the booming economy.

Minutes of the March monetary meeting between Kenneth Clarke and Eddie George, due to be published on Wednesday, are expected to show the Governor yet again pressing for a rate rise. Mr George is likely to repeat the call to the new Chancellor on 7 May, the date of the next meeting.

Other reports this week will endorse the Governor's argument. The Chartered Institute of Marketing says today that the marketing managers surveyed have become more confident about the business outlook. The confidence index has recovered to last spring's level after a dip late last year and early this year.

Figures due at the end of this week for gross domestic product in the first quarter of 1997 will show that growth has already accelerated, according to City economist David Mackie of JP Morgan. In a research note today he predicts a first-quarter increase of nearly 1 per cent.