G10 nations quell fears of interest rates rises

The world's leading central bankers yesterday calmed fears of rapid and imminent rises in interest rates, saying inflation was "well contained".

The Group of Ten (G10) nations said inflation had remained in check despite clear signs of an economic upturn in the US and Europe.

The upbeat comments came as a rise in prices charged by British factories boosted hopes that the UK was emerging from stagnation.

Sir Edward George, the chair of the G10 meeting and Governor of the Bank of England, said there was a "clear sense" the US and Europe were through the worst of the recent trough. But he said the group, which included the Federal Reserve's chairman Alan Greenspan and European Central Bank president Wim Duisenberg, believed inflation was not a major concern.

"One of the interesting features of the discussion was that there was relatively little discussion about inflationary pressures," he said. "I think that is a reflection of the fact that for the time being they are really very well contained."

The Fed, the ECB and the Bank of England all cut rates last year to fend off recession but speculation has now focused on the timing of the next rise.

The UK has failed to show any growth over the past six months but many analysts – including the British Treasury – forecast a strong recovery.

Official figures yesterday showed UK factories raised their prices in April for the fifth month in a row, providing fresh evidence manufacturing was emerging from its worst recession in a decade.

Prices charged rose 0.5 per cent on the month to stand 0.2 per cent higher than a year ago, according to official figures yesterday. Those numbers were the strongest since September 2000 and August 2001 respectively.

"There is some evidence that manufacturers have been able to pass on cost increases," said John Butler, UK economist at HSBC.

The figures follow surveys by the CBI, the British Chambers of Commerce and the Chartered Institute of Purchasing and Supply pointing to a recovery around the corner.

Rising oil prices contributed to the increase in UK prices, but "core" output prices, which strip out volatile elements such as petrol, rose 0.2 per cent on the month, the strongest since September 2000.

Companies benefited from earlier falls in the oil price that contributed to a smaller bill for raw materials.

"Manufacturers are getting some margin relief as they are not passing on cost benefits which bolsters the case for recovery," said Danny Gabay, UK economist at JP Morgan.

The relief may be short-lived as the International Energy Agency yesterday warned world oil prices would rise this year if demand rose and stocks fell.

The West's energy watchdog said demand in the industrialised world suffered its steepest drop in 12 years in March, but was now set to recover strongly.

The IEA said production by members of Opec fell to its lowest level since June 1993 in April as Iraq suspended exports for a month in protest at Israeli-Palestinian violence.