Newspaper article The Evening Standard (London, England)

Why the MPC Must Wait and See on Interest Rates

Newspaper article The Evening Standard (London, England)

Why the MPC Must Wait and See on Interest Rates

Article excerpt

THE Bank of England's monetary policy committee may know what it is going t o do

with interest rates at its meeting tomorrow, but it has successfully confused everyone else.

Take a paper circulated this week by the Centre for Economics and Business Research, an economics think -tank that for the most part produces sensible stuff. The headline on its missive was that inflation would fall to 1.9% by July u a pretty striking drop given that we came into this year with inflation running at 3% and a widespread expectation that Bank of England Governor Mervyn King might shortly have to write to the Chancellor explaining why inflation had breached its upper limit.

The CEBR's confident prediction was based on three things. First, utility bills are coming down at the retail level following the easing of wholesale prices a few months ago. These lower bills should roughly halve the rate of growth in the "household" part of the index, which accounts for 12% of the total inflation measuring basket.

Second, oil prices u though stubbornly high because of continuing political uncertainties in the Middle East and high by historic measures u may nevertheless soon have a beneficial effect onthe inflation numbers.

This is because it is now 12 months since they began to spike up in earnest, so in year-on-year terms they are, or soon will be, a shade lower than they were 12 months ago. Transport accounts for 15% of the inflation basket of goods so any easing here will have a big effect on the published number.

Third, the housing market is expected to slow down, and that should ease the price pressure in housing

equipment. This includes furniture, curtains, carpets and all those extras which need to be bought when people move house but which languish in the shops when people stay put. These also account for 12% of the basket that measures inflation.

Add these three items together, and it is pretty obvious that things are likely to cool u and cool fast.

The case seems persuasive and wellmade that the changes in economic activity at home and abroad are already leading to a reduction in inflationary pressures.

It is all the odder, therefore, to find in the final paragraph of its note that the CEBR thinks "it is almost certain that a further [interest] rate rise will be necessary to bring inflation under control", and that whether rates go up tomorrow or not will depend on the level of inflation in March.

Given that interest rate rises take up to two years to work through the system and we have had three already since last August, one must Taking stock of the brokers IT IS sometimes said that stockbrokers, like farmers, are never happier than when they are complaining about business conditions, but things are rarely as bad as they make out.

Thus, if you take the news flow of the past few days u with Bridgewell looking for a bid as a solution to its deep-seated lack of profitability followed by Evolution reporting lower profits, albeit with a buoyant fund management arm, and Numis also expecting to shade a bit from last year's peak largely because it is handling fewer flotations, you might conclude that this was an industry whose best days are behind it, temporarily at least. …

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