Biz Net - Business News » Bank of England

Manufacturing costs may fuel interest rate trouble

Alan — Tue, 15 Feb 2011 18:49:03 +0000

Following the news that input costs, particularly for raw materials, jumped in January at the quickest annual rate for British manufacturers in more than two years, fears over possible interest rate and consumer inflation increases developed.

Surprising hikes in the costs of imported oil, food, metals, and various other materials generated a greater than 13% annual increase, according to the Office for National Statistics.

The Bank of England is sweating over this news, which will force consumer prices up. The consumer price inflation is double the target, at 4%, but the VAT, which is new this year, will scare the cost of living even higher.

The source of these troubles can be traced back to a 29% jump in the price of crude oil last May. The Egyptian revolt has pushed the price of oil up to $102 per barrel. The cost of imported metal has seen a push of more than 26%, food has been jacked up more than 11%, and various other materials 11% as well.

Alan Clarke, from BNP Paribas, warns us, “The numbers tell us that consumers are the target of such inflation, in the long run. The high costs are passed down the line to the end, which is the consumer. There is an attempt by the Bank to name these end-stream prices as ‘one-offs’, which are expected to vanish from the CPI inflation with time,” he continued.

The cost of goods charged by manufacturers (factory-gate prices) increased by 5% over the past year, yielding the highest annual rate since May.

The Bank of England has been more than fare, keeping the base rate at 0.5%, without a rise in 23 months. However, there is anticipated change that may occur later this year.

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West Midlands engineering plants busy on the back of continued growth

Alan — Fri, 03 Sep 2010 02:57:58 +0000

According to the British Chamber of Commerce, or the BCC, engineering plants have been busy once again in the West Midlands. The plants will be providing specialized parts to the German car industry.

David Kern is the chief economist with the BCC. He says that manufacturing in Britain has been more successful than services for three quarters now. “We have not seen that for a very long time”, he says. Dr Kern says that the increased business in manufacturing is due to the prevailing effect of the exchange rate. The British Chamber of Commerce says that manufacturing will grow by 3.3%, while services will only increase by 1.4% in growth.

Still, it is not known if the significant growth in manufacturing is due to a prompt snap-back following the economic recession. Furthermore, it is unclear on whether or not this growth can be continued.

The economy in Britain is recovering slowly, and unemployment will continue to rise throughout 2011. Dr Kern has stated that the economy is “clearly slowing”, and that the “same global imbalances that caused the crisis” have become evident even today.

He has also stated that the Bank of England could be forced to enter yet another round of quantitative easing. This will help to offset budget cuts and bring Britain’s economy back to a sustainable spot. Charles Bean, the Deputy Governor of the Bank of England says that quantitative easing will be possible, and that “further policy action” will likely be essential to a full recovery of the economy.Ba

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BoE lets interest rates settle

Alan — Sun, 11 Jul 2010 04:48:26 +0000

The Bank of England’s decision to leave interest rates at 0.5% has spurred a slight rise in shares, with Lloyds, Barclays and Royal Bank of Scotland gaining an average of 3.5% in the past couple of days. Bank shares also rose in the EU after initial reports from the stress tests being conducted on European banks. These stress tests are intended to find out whether lending institutions are strong enough to withstand financial setbacks without being forced to raise more capital.

Financial analysts are warning that the stress tests may not be realistic in terms of the factors being used as guidelines. For example, the recent tests assumed that bonds would fall only 20% if countries such as Greece, Portugal, Spain and Ireland were unable to pay outstanding debts.

Gary Jenkins of Evolution Securities said that in his view, if all of those countries were to default at the same time, bond prices would drop much more than 20%. He also mentioned that if such a default occurred, investors would not lend money to the banks, so if the central banks couldn’t fund the entire banking sector there could be a total meltdown.

Though many banks are expected to be tested on their ability to weather a storm, the results of tests so far are incomplete and inconclusive, and there is increasing pressure for European authorities to release more comprehensive information. Jenkins said that he thinks Europe is reluctant to do so, “Because the only time you really want to undertake a stress test of your banking system is when you already know the answer.”

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Big inflation hike threatens recovery

Alan — Thu, 20 May 2010 02:31:33 +0000

The rate of inflation during April jumped to a high of 3.7%, which is the highest it has been in the previous 17 months, and a much bigger leap than was anticipated.

A large part of the rise of price inflation since November of 2008 is attributed to the increase in price of food, women’s clothing, and the duty increases on tobacco.

As a result, Mervyn King the Governor of the Bank of England, was left to compose a letter that would be open to the public and sent to Chancellor George Osborne with an explanation of why inflation was over the Government’s two percent mark.

The City was surprised by the figure which anticipated an increase of 3.5%.

In terms of employers and wage negotiations, retail price inflation jumped up to 5.3% which is the highest year to year increase that has been seen since July 1991. This rate was expected to only reach 4.9% by the City.

The higher inflation rates had spiked fears that the Bank in turn will be forced to increase interest rates sooner rather than later, although the Bank has spent the last few months stating it would only need to increase rates during the first three months of the year.

In anticipation that rates would continue to rise, sterling rose higher against the value of the US dollar jumping to $1.4514 from the previous trading rate of $1.4408.

Brokerage Stephen Lewis from Monument Securities stated that the figures came as a shock and said that this will be a formidable challenge to the MPC’s as they attempt to analyze and manage inflation and the economy in the next couple of months.

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Business interest rates hold at 5%

Alan — Sat, 06 Mar 2010 03:38:44 +0000

The monetary policy committee of the Bank of England voted on Thursday to hold the interest rates at .5% and not to extend its programme of cash injections back into the economy.

The decision was expected by most and comes as the state of the economy showed mixed signs during the early months of 2010.

Although the service and retail sector showed signs of weakness during January which may have partially been due to the heavy snows, February showed signs of recovery activity. Overall the housing market once again seems to be weakening with prices starting to fall in February according to measures by both Halifax and Nationwide.

Measures that the Bank has been watching have also shown positive trends such as the M4 money which rose by about two percent in the first quarter of 2010, a drastic change from their steady decrease over the four prior months.

They currently have quantitative easing in place is which is the policy of creating money in the economy so that people spend more, which is aimed at helping to prevent a decline in the supply of money as banks reduce the amount of credit they issue.

In their statement on Thursday the Bank reinforced their previous stance that they will not change their current monetary policy except for in months where inflation forecasts for the quarter are available.

The last time that forecasts were published was back in February which prompted the MPC to put a hold on quantitative easing, which will be looked into again in May when the next set are published.

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