The Institute of Directors expects to see higher UK interest rates this year, beginning with...
The Institute of Directors expects to see higher UK interest rates this year, beginning with a rise before the end of June.
The forecast is based on the results of its Business Opinion Survey for the first quarter of 2002, which, on the whole, points to economic recovery.
The survey shows a slippage in company performance, lower capacity utilisation and weaker profits, despite better output growth over the past three months and a sharp recovery in optimism. However, all the forward indicators improved, especially export orders and expected profits.
The IoD attributed some of the improvement to a generally better business climate and part to a recovery from the first instinctive reaction to 11 September events in the final quarter of last year.
Ruth Lea, Head of the Policy Unit, said: "Our latest survey suggests that the economy is recovering despite some weaker numbers for company performance. Business optimism has 'perked up' after collapsing in December – though we believe that much of December's slump was a instinctive reaction to events of 11 September so the figures should be interpreted with some caution. The improvement in export orders is especially encouraging. Another encouraging feature is the sign that manufacturing may be picking up after, what has undoubtedly been, a nasty recession. Margins throughout the economy are, however, still being squeezed by cost increases outstripping price increases."
"We now expect GDP growth of around 2% this year, with growth coming from both the public and the private sectors, and inflation, on the whole, should remain benign for the rest of the year. But, given buoyant consumers, a hot housing market and assuming a fairly neutral budget, we expect higher interest rates this year," added Lea.
The IoD said that business optimism jumped in the first quarter to its best level since the second half of 2000, after slumping in the previous quarter. Reported profits, however, were the worst since December 1998 as cost increases continued to outstrip price increases, and company performance slipped further even though the majority of respondents reported that their companies were still performing well.
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