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Pastimes : The Hot Button Questions:- Money, Banks, & the Economy -- Ignore unavailable to you. Want to Upgrade?

To: maceng2 who wrote (536)	1/23/2004 6:01:28 AM
From: maceng2	Read Replies (2) \| Respond to of 1417

While some talk about interest rate cuts, UK talk hikes... reuters.co.uk Rate hike on cards as growth surges Fri 23 January, 2004 10:03 LONDON (Reuters) - Interest rates seem likely to be heading higher in less than two weeks after official data showed the economy and retail sales growing much more strongly than had been expected. The Office for National Statistics said on Friday gross domestic product rose 0.9 percent in the fourth quarter of 2003, its strongest rate in almost three years, and giving an annualised growth rate of over 3.5 percent. The ONS also said retail sales in the key December shopping period jumped 0.9 percent on the month, more than twice the rate predicted by City analysts, and one which is almost certain to provoke an already twitchy central bank into adding to its November rate hike at its February meeting. Financial markets reacted swiftly with short sterling interest rate futures plunging to price in more aggressive rate hikes from the Bank of England. The pound gained half a cent against the dollar towards 11-year highs against the dollar at above $1.85. The rise left retail sales four percent stronger than a year earlier with all categories except mail order registering strong rises. The figures contrast with a mixed picture of festive sales reported by the country's major retailers. The quarterly rate of sales growth showed a rise of 1.9 percent from the third quarter, the strongest growth since the three months to May 2002. The economy's impressive growth rate in the fourth quarter meant it expanded by a respectable 2.1 percent in 2003 as a whole, in line with analysts' forecasts and up from 1.7 percent in 2002. The rise leaves the economy comfortably in fourth place in the world rankings, having slipped briefly behind France early last year. The annual growth compares favourably with Germany, whose economy contracted by 0.1 percent last year. It is still trailing the giant United States economy, however. The ONS said there was some anecdotal evidence that many retailers had moved their end of year sales earlier into December to attract shoppers. But there was evidence in the figures that the higher volumes were only brought by price cuts. The so-called deflator -- a measure of High Street inflation -- fell back to -1.0 percent, the lowest since May last year. That gives an indication that despite strong consumer demand, inflationary pressures remain in check. The Bank is forecasting inflation picking up through this year although currently it is at just 1.3 percent, well below the Bank's government-set target of 2.0 percent under the new consumer price index measure. Financial markets are pricing in interest rates a whole percentage point higher than the current 3.75 percent level by the end of the year as the Bank seeks to prevent the economy overheating, since it is now growing well above its long-term trend rate of growth.