| BUSINESSWEEK ONLINE : OCTOBER 25, 1999 ISSUE | ||||||||
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| BUSINESS OUTLOOK
Britain: Keeping a Lid on Growth Bank of England Deputy Governor and inflation hawk Mervyn King had a tough sell on Oct. 11. He was in Edinburgh, Scotland, defending the Monetary Policy Committee's preemptive rate hike in September before an industrial group hit hard by the manufacturing recession. What's more, he fueled speculation that, after no October hike, the MPC will lift rates again in November. King's remarks came as the British economy faces not only robust domestic demand but also a pickup in foreign demand. The unemployment rate, at 4.2% in September, is already the lowest in two decades, and wage growth, which sped up to 4.9% last month, is faster than the MPC deems consistent with its 2.5% inflation target. Recent government revisions to gross domestic product show that the economy was stronger last winter than first thought, and that the MPC's 2.5 percentage points in rate cuts, which took rates to a 22-year low, may have been overdone. British demand is already growing 4.5% yearly, and it's likely to accelerate thanks to past rate cuts. Moreover, exports are up sharply, to the benefit of manufacturers. Excluding oil, exports in the past three months are growing at an annual rate of 18% compared with the previous three months, and shipments to non-European Union countries are up 30%. August industrial production posted the seventh gain in a row, and the recent trend in factory output is the strongest in nearly two years. September underlying retail inflation remained at a tame 2.1%, helped partly by price wars generated by competition from Wal-Mart Stores Inc., along with declining import prices resulting from the pound's strength this year. Still, service inflation is 3.6%. Inflation for nonenergy factory-made goods is also benign, but input prices are picking up. New strength in sterling since the September rate hike--and its potential to throttle the factory recovery--likely stayed the MPC's hand in October. But peppier foreign demand and the need to rebuild inventories will power the factory upturn in coming months. By JAMES C. COOPER & KATHLEEN MADIGAN _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Britain: Keeping a Lid on Growth CHART: Underlying Inflation Remains under Control INTERACT E-Mail to Business Week Online | |||
