He added that while recent survey evidence had indicated a slowdown
He added that while recent survey evidence had indicated a slowdown across all parts of the economy in June this was probably due in part to the double Jubilee bank holiday and the World Cup. “If you look at the second quarter, the surveys have been pretty good and GDP for that period could be between 0.7 and 1.0 per cent, which would be above trend.”He said that, assuming the quarterly surveys from the CBI and British Chambers of Commerce were strong, the Bank would hike in August.Geoffrey Dicks, chief economist at Royal Bank of Scotland, said the UK had embarked on economic recovery at a time of full employment.”Wage pressure, already evident in parts of the economy, is likely to spread,” he said. “Higher interest rates will be needed to contain the threat.”Certainly recent reports from Incomes Data Services and the Industrial Relations Services, two acknowledged pay analysts, have reported a rise to 3 per cent from 2.5 per cent in average wage deals over the past few months.Unemployment is close to record lows and more people are in work than ever before. Average earnings levels – a key marker for inflation-watching – is subdued but that is mainly driven by the one-off collapse in bonuses.Meanwhile, the Government is embarked on a major spending programme that will undoubtedly boost public sector employment and wages further. Philip Shaw, chief UK economist at the finance house Investec, said that Bank’s new forecasts, which are prepared ahead of next month’s meeting would uncertainly point towards the risk of higher inflation.
Recent comments from Mervyn King, the hawkish deputy governor who was alone in voting for a hike last month, imply that it could show inflation as high as 3 per cent.”Under this scenario the committee would feel obliged to raise rates at its August meeting, to push the forecasts back on track Indeed this is just about still our central case,” he said. “But this is contingent on equity turmoil dying down which looks far from a sure fire bet at present. Concerns over a runaway boom in the housing market might be shelved until another day, or in extreme circumstances, perhaps even another year.”Mr Rubinsohn said concerns over the housing market were overdone. “People talk about the need to prick the bubble but if you did succeed in doing that I am not sure there’s an awful lot left to keep the economy growing.” He said there was a deeper issue about the balance between the worries over growth and concerns over inflation. “If in 12 months we look back and have to say we misread the signals then we could say ‘OK it was a mistake [not to hike rates] and we have ended up with slightly higher inflation,” he said “But the great worry is .. repeating the Japanese deflation. We thought that had gone away but now we see even the Fed is worried about that.”In turn, Mr Saunders questioned whether the focus on falling share prices had been overdone, especially as the latest figures showed a marked increase in business profitability.He said while 60 per cent of the earnings per share of the FTSE-Allshare companies were derived from overseas, that figure was half that for overall business profit.At the end of the day, the near-term path for interest rates will be determined by whether the Bank chooses to take a risk over growth or inflation. While Mr Rubinsohn sees a possible threat of deflation others, such as John Butler at HSBC, fear the Bank is taking a risk by not responding to clear hints that inflation is rising above target.
“A rate rise is always unpopular, probably more so now than ever,” he said. “But if the Bank delays the hike in rates, it increases the risk of future price instability.”It is this balance of risks that will determine whether households can celebrate New Year’s Eve with the same borrowing costs as they did a year earlier.. The world’s most famous actor suddenly has the world’s most famous braces. “My mouth wasn’t closing properly,” Tom Cruise explains of his celebrated orthodontic procedure. But, braces or not, the wattage of Cruise’s famous smile, is as dazzling as ever as the unshaven actor bounds into the suite of a hushed Upper East Side hotel to talk up his latest film. And he’s just as charming as you’d expect from all those testimonials from fellow actors and past directors who swear the man Time magazine dubbed “Hollywood’s Eagle Scout” is never anything but punctual, polite and prepared. The one-man charm offensive, who’s about to turn 40, keeps wiping that smile off his own face with movies that are altogether darker, edgier and more complex than we have any right to expect from the biggest box-office attraction of the age.