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Last Updated: Monday, 3 November, 2003, 15:08 GMT
Sales surge brings UK rate rise nearer
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Will a rate rise curb High Street spending?
A rise in UK interest rates moved a step nearer on Monday after figures showed brisk growth in High Street sales and growing strength in the manufacturing sector.

According to a monthly study by the CBI, retail sales in October grew at their fastest rate since April 2002, with low interest rates and high employment levels underpinning consumers' willingness to spend.

In the monthly study, 56% of retailers said October sales were up on the same point last year, with only 21% recording a fall.

The news came as the Chartered Institute of Purchasing and Supply (CIPS) said its manufacturing index for October was up for the fourth month running, with activity hitting its highest level since December 1999.

The Bank (of England) needs to ensure that it does not damage business confidence with a series of quick rate rises
Ian McCafferty, CBI chief economic adviser

The CPIS index - a barometer of activity in the manufacturing sector - rose to 54.2 in October, up from 53.2 the previous month.

A reading above 50 on the CIPS index denotes expansion, while a score below 50 indicates contraction.

A precautionary interest cut in July took rates to a 48-year low of 3.5%, but Monday's new data shows the economy continuing to gain strength.

The release of figures last week showing that households borrowed a record 10.7bn in September had already led economists to predict the Bank of England will raise rates on Thursday.

'Recovery fragile'

CBI chief economic adviser Ian McCafferty said he accepted the case for the Bank of England to take back July's cut in light of the new figures.

cooling towers
Manufacturing's comeback is gaining strength
But he warned: "The recent recovery in the wider UK economy is in its early stages and is still fragile.

"The Bank needs to ensure that it does not damage business confidence with a series of quick rate rises.

"The MPC must make clear that in the coming months it will not choke off a recovery that has still not fully taken hold."

Rate rise 'likely'

The CBI's consumer report said the change to colder, more typical autumn weather, and good sales of seasonal ranges had boosted some traders.

Meanwhile, the CIPS manufacturing data reflected significant expansion of both output and new orders, with firms reporting incoming new business from both domestic and foreign markets.

Ryan Shea, an economist at Bank One, said: "This (CPIS) report is obviously better than expected and shows an acceleration in activity rates, which is good news.

"We had already been looking for a hike in interest rates before the data, so this reinforces the view that the Bank of England will move away from an accommodative monetary policy and makes a hike even more likely."




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