GROWTH remains strong but business is increasingly concerned that rising interest rates will hit the economy.
According to quarterly business surveys to be published this week by the Institute of Directors (IoD) and British Chambers of Commerce (BCC), despite worries about rising interest rates there is nothing to stop the Bank of England hiking them even further after last week’s increase from 5.5% to 5.75%.
The BCC’s survey, covering more than 4,300 companies, will reveal an upbeat picture for manufacturing, with the service sector more mixed.
Manufacturing appears to be benefiting from the strength of the global economy, and is recording its strongest performance, on a range of measures, for several years.
One encouraging feature of the survey, as far as the Bank is concerned, will be that price expectations have not risen. Having increased sharply in the final quarter of last year, they fell back in the first quarter of 2007 and have remained around those lower levels.
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The IoD’s quarterly business-opinion survey shows a drop in confidence to its lowest level for two years.
Profit expectations also slipped, while price expectations were broadly unchanged. More than half of the directors surveyed said they thought that higher interest rates would slow the economy later this year and into 2008. But Graeme Leach, the IoD’s chief economist, said the survey did not sound the all-clear for the Bank.
“This survey suggests activity is slowing but that activity remains at a high level,” he said. “Consequently the survey is sending out very mixed signals to the Bank of England. We don’t have the evidence yet to say whether the interest-rate cycle has peaked.”