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Price inflation may be starting to slow

24 September 2008

The global economic slowdown has further depressed manufacturers’ output growth expectations. Export orders have been particularly hit, despite the fall in Sterling against the Euro and the US Dollar since the spring.
However, price inflation is likely to slow, with falling expectations of price rises - which should provide scope for the Bank of England to cut interest rates in the coming months. The CBI recently called for a half-point cut in November.

Price inflation may be starting to slow
Price inflation may be starting to slow

Ian McCafferty, CBI Chief Economic Adviser, said: "Manufacturers have been hit harder than expected by the economic slowdown with demand falling sharply, and they are not optimistic about the next three months, with output expectations having fallen further.

"But there are further signs that the Bank of England should consider cutting rates soon. Inflationary pressure is starting to fall, with fewer manufacturers now expecting price rises over the next three months than in our previous recent surveys. We believe the Bank should have room to reduce rates by half a point in November, and this new survey reinforces our call for a cut."

The survey reveals that output expectations have fallen to a seven-year low. Over the next three months, 20% of manufacturers expect their volume of output to be up, but 36% expect it to be down, giving a balance of -16%. This is down from -13% per cent last month and the lowest since December 2001 (-28).
Current total order books have also been hit by the slowdown, and 19% of manufacturers say that their total order book is above normal, 44% say it is below normal, giving a balance of -26%, once numbers have been rounded. This is a fall from the balance of -13% last month, and is the lowest figure since January 2006 (-28%).

Export order books have been particularly affected, with 14% of manufacturers saying that their export order book is above normal, while 39% say it is below normal, giving a balance of -25%. This is a drop from the balance of -9% last month, and is the lowest figure since October 2005 (-28%).

Expectations of price rises for the next three months are lower than in previous months. While 33% of firms expect prices to be higher over the next three months, 56% expect them to be the same, and 10% expect a fall. This gives a balance of +23%, which is lower than +31% last month, and the lowest since February (+22%).

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