US figures offer more hope on interest rates

STATISTICS published yesterday provided more reassurance that the US Federal Reserve would not yet have to increase interest rates, writes Diane Coyle.

However, the dollar came under pressure against the mark as investors focused on the prospect that the German government would be re-elected this weekend.

The figures on consumer prices, retail sales and industrial output last month showed the US economy in a good light. Consumer prices rose 0.2 per cent in September, taking the year-on-year increase to 3.0 per cent. Retail sales jumped by more than expected - 0.6 per cent in September. Sales were a record dollars 188.43bn, 8.1 per cent higher than a year ago.

However, industrial production was flat after 15 months of increases. The Fed, which monitors the industry figures as a more forward-looking indicator of inflation than consumer prices, said a strike had held down the output of the car industry.

Excluding cars, output inched up 0.1 per cent. Capacity use fell to 84.6 per cent last month from 84.8 per cent in August.

Ian Douglas, director of bond strategy for UBS, said: 'The US Treasury market has rightly reacted calmly to the data. Growth in the economy is moderating to a more sustainable pace.'

The Dow Jones index was 17.83 higher at 3,907.78 by 3pm, and Treasury bonds had made modest gains. In London, gilts were steady while the FT-SE 100 index closed 35.2 down at 3,106.7. The dollar had fallen from DM1.53 to DM1.52 by 3pm in New York.