Upside risks

Article Abstract:

The Bank of England is concerned about risks arising from inflation in the UK though the government target level is likely to be maintained following rises in interest rates. Underlying inflation looks set to peak in 3rd qtr 1995, with pressure from rising costs. Capacity pressures are a concern in manufacturing, though may be easing elsewhere in the economy. The markets forecast short term interest rates at above 8% by year-end 1995, with medium-term inflation rising to above 4%.

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UK inflation: question marks

Article Abstract:

The UK government is aiming for an inflation target of 2.5% or less by the end of the government's tenure, but there could be temporary rises above this figure. A drop in the value of pound sterling and the green pound are leading to inflationary pressure. Inflation could peak at above 4% if pressure on prices leads to higher wage rises. This could lead to problems for the government securities market unless interest rates are raised by the UK chancellor.

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On course

Article Abstract:

UK economic growth should decelerate to a sustainable rate in 1995, if interest rates are raised enough in the first half of the year. Inflationary pressure is coming from shortages of plant, skilled labor and housing, but retail sales, commodity prices and consumer confidence are not putting pressure on inflation. UK base rates could stabilise in mid-1995 at between 7% and 7.5%, according to Goldman Sachs. Retail price inflation may peak in 1997.

Interest rates

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