Can you believe that it’s that day again? By midday you will know – are rates going down or staying on hold?
Most seem to be expecting rates to stay where they are, but then again, yesterday saw news from our manufacturing sector to put fear up the Bank of England’s Monetary Policy Committee.
Manufacturing output fell in March by an alarming 0.5 per cent, and industrial production as a whole was down 0.4 per cent.
When the Office for National Statistics publishes this data it likes to focus on quarter on quarter changes – and here the news is not so bad – with the sector expanding by 0.3 per cent. But if March proves to be a sign of things to come, then that’s a big worry. After all, with consumers in trouble, manufacturers are supposed to be taking up the slack.
Yesterday we revealed bad news from the services sector from the Chartered Institute of Purchasing and Supply.
The question is, though, does the Bank of England dare cut rates when it is so worried about inflation? Especially when there is a good chance inflation will rise by more than a full percentage point above target soon.
Then again, in the longer-term, inflation is down to how much demand there is. As was explained in the article above, rising prices is not the same thing as inflation. The credit crunch, falling house prices and plummeting consumer confidence should all help constrain demand – making cuts in interest rates less likely to lead to inflation.
The danger lies in what will happen next. Central banks are pouring money into the system to try and end the financial crisis. But when the crisis ends, some of this money will still be there – and there must be a fear that the new money, created to end the financial crisis, and old money that was temporarily sitting idly, will combine to create a new inflationary spiral.
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