Monday, 12 November 2007

Output prices points to further inflationary pressure

The Bank of England's monetary policy committee face a stark choice at its next meeting - housing market or inflation. Today, output price data was published, and the numbers were much nastier than anticipated. Factory gate prices rose by almost 4 percent during the twelve months up to September - the highest rate of growth since 1995.

Any attempt to cut interest rates at this stage would be highly irresponsible. Oil prices are pushing $100 a barrel, world commodity prices, especially food, are also increasing at an alarming rate. On the other hand, any failure to cut rates would weaken housing prices. To add to the MPC's difficulties, over-extended and financially fragile banks also need the soothing balm of lower rates.

So what will it be? The property market or inflation?

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