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UK Interest Rate: 5.00%
UK
Interest Rates Forecast: Possible cut to 4.75% in June
Inflation
Remains Unchanged at 2.5%
The
government's preferred CPI measure of inflation remained
unchanged at 2.5% this month, against an expected rise
to 2.6%.
The
lower than expected figure sparked new hopes that the
Bank of England might cut interest rates
further, but it should be remembered that when the Bank's
Monetary Policy Committee made the decision to cut rates
to 5%, they would already have had access to these inflation
figures.
In
other words, the chances are that this lower than expected
inflation rate was a factor in this month's interest rate
cut to 5%.
Manufacturers'
Costs Reach Record High
Manufacturers'
costs - the costs of fuel, raw materials and other commodities
- reached record highs this month, with costs an average
of 20.4% higher than this time last year.
Much
of the increase can be traced back to the high cost of
oil - the cost of fuel and many other raw materials such
as plastics is linked to crude oil prices.
Higher
input costs mean higher output costs, and factory gate
inflation - the price of finished goods - reached a 17-year
high of 6.2%, according to figures from the Office of
National Statistics. Retailers with tight margins will
struggle not to pass these increased costs onto consumers
- with the result that upwards pressure on inflation is
unlikely to cease anytime soon.
This
in turn means that further interest rate
cuts could be difficult for the Bank of England to justify,
trying as they are to tread a line between crippled credit
markets (demanding cheaper credit) and rising prices (requiring
a reduction in cheap credit to combat).
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