Inflation Worries Could Put Brake on Interest Rate Cut; ECONOMICS

Article excerpt

Record high inflation expectation figures will give the Bank of England Monetary Policy Committee cause to hesitate before making further interest rate cuts, according to the latest figures from BDO Stoy Hayward's Business Trends report.

The accountancy firm's Inflation Index leapt once again from 111.8 in January to 113.7 in February, an all time high for the measurement which has been running since 1998.

The 'poll of business polls' also reveals that short term business confidence remains shaky.

It fell further from 99.8 in January to 99.4 in February, the fifth consecutive month it has declined.

After a resurgence over the last few months, the manufacturing sector is also back below the crucial 100 mark, from 101.6 in January to 99.8 in February, indicating below trend growth rates for the sector.

However, in the medium term business confidence remains robust.

A second survey was equally bleak.

Soaring fuel and home energy prices have helped sink consumer confidence to a 13-year low, according to the GfK NOP barometer.

It scored minus 17 this month, down four points from January and the lowest level since December 1994.

In a further sign of a spending slowdown, the appetite for buying big ticket items such as fridges and washing machines was the weakest for nearly 18 years.

GfK spokeswoman Rachael Joy said rising petrol costs and heating bills were squeezing household budgets despite this month's interest rate cut, the second in two months.

She said: "Consumers are feeling a little less confident about their own personal finances and much less confident about the general economy as a whole."

BDO suggests that businesses feel, nevertheless, that the economy is sufficiently strong for rising input costs to be passed onto consumers. …