02/08/2007 -
Homeowners are bracing themselves for further interest rate rises later this year after the pace of manufacturing activity hit a three-year high in July.
Figures from the Chartered Institute of Purchasing & Supply (CIPS) revealed that manufacturing output expanded at its fastest rate since 2004, adding to the pressure for the Bank of England to raise rates.
The Bank's Monetary Policy Committee will announce its decision on rates today and is widely expected to keep them on hold this month, particularly following recent market turbulence.
But many economists are predicting rates will hit 6 per cent by autumn as the MPC acts to bring Consumer Price Index inflation back to its 2 per cent target.
CIPS said inflationary pressure was still building among manufacturers, with rising input and output prices propelling factory gate prices upwards at their fastest rate in the survey's history. The sector shrugged off recent interest rate hikes with a robust domestic performance, as new orders grew at their fastest rate for more than a year and output growth reached a 10-month high. Manufacturers reported higher costs for oil as well as metal, timber, plastics and chemicals prices. Employment in the sector also rose for the seventh successive month, with job growth at its fastest for three years.
Howard Archer, economist at Global Insight, said: 'The evidence suggests that manufacturing is currently showing considerable resilience in the face of the strong pound, elevated oil prices and higher interest rates.' The survey, though unlikely to push the Bank into raising rates today will 'certainly fuel expectations that interest rates will rise by a further 25 basis points to 6 per cent this autumn', he added.
Retailers urged the Bank not to increase rates until the full impact of previous hikes on consumer confidence is known. Kevin Hawkins, director of the British Retail Consortium, said the effect of previous increases is 'already beginning to bite'.
Source: Independent