Markets jittery as Bank of England set to hold rates
(Reuters)
Updated: 2006-10-05 15:01
BoE deputy governor John Gieve said last week that he had even considered
voting for a rise last month but fellow MPC member David Blanchflower appeared
more concerned the economy was slowing down.
Recent data suggests he may have a point.
Service sector output, which makes up three-quarters of the national total,
fell 0.3 percent in July, the sharpest decline in nearly three years. British Q2
GDP growth, meanwhile, was revised down to roughly its trend rate.
The statistics office had also massively overstated the extent of price
pressures in the economy and a big fall in gas prices bodes well for inflation
coming down if utility companies pass on their savings as quickly as they passed
on higher costs.
But some influential academics have been sounding the alarm over the amount
of cash sloshing around the economy. M4 money supply growth rose to 13.7 percent
in August, its fastest rate since 1990.
"High monetary growth is invariably associated, in the medium and longer
terms, with inflation," the academics said in a letter to a newspaper last week.
Signatories included former MPC member Charles Goodhart.
And while the latest fall in energy prices may depress inflation further
ahead, the CPI is currently running half a point above its 2.0 percent target
and set to rise more on higher university tuition fees and pre-announced utility
bill hikes.
BoE Governor Mervyn King said in August there was a 50-50 chance it could
exceed three percent in the coming months - a level that would force him to
write an explanatory letter to Chancellor of the Exchequer Gordon Brown.
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