Retailers call for rate freeze

Consumers kept their wallets tightly shut last month despite slashed prices from retailers trying to increase sales, new figures showed.

Sales volumes on Britain's high streets were flat in September according to the latest snapshot of the sector published today by the British Retail Consortium. The BRC said there was no sign of a consumer boom that would justify further interest rate increases.

"The Monetary Policy Committee was right not to raise interest rates last week and, on the basis of these figures, speculation about the need for an increase next month is misplaced," said Ann Robinson, the BRC's director general.

But signs of resurgent inflation in the manufacturing sector drove the pound to a one-week high against the euro yesterday. Government figures showed a 0.3% jump in the price of goods leaving the factory gates last month, which pushed the annual rate up to 1.7%, the highest since October 1995.

Expectations that the figures would increase the chances of the Bank of England raising interest rates next month caused a flurry of sterling buying, pushing the pound up to 64.42 against the euro at one point, its highest for a week.

Analysts said core output inflation remained subdued. Stripping out erratic items like food, drink and tobacco, the price of goods at the factory gate was falling at 0.3% year-on-year, according to the ONS.

"With core output price inflation still negative, there is little immediate threat to the inflation outlook from the industrial sector," said Jonathan Loynes, UK economist at HSBC markets.

"Nonetheless, with the MPC focusing its attention on the services sector, where price pressures have been much more stubborn, these numbers have little bearing on policy," he said.

The pressure on margins is pushing firms to squeeze everything they can out of their workforces.

Manufacturing productivity is rising at its fastest rate in seven years, according to a separate report for the Institute of Management Service from researchers, NTC.

The improvement is a result of faster output growth and ongoing job shedding in the sector. "Manufacturing employment fell for the twenty-second month in a row, while output rose at the fastest rates since November 1996," NTC said.