Oil price rise could ‘halt UK boom"

With unrest in Yemen and Libya pushing up price of crude, British firms expect their turnover and profit to slow Oil prices hit a two-and-a-half-year high yesterday amid warnings that the soaring cost of raw materials will put the brakes on Britain’s manufacturing boom. Brent crude pushed above $120 a barrel after traders voiced concern that continued fighting in Libya and the prospect of a resurgent US economy would put pressure on supplies. Unrest in Yemen and imminent elections in Nigeria, one of the world’s biggest producers, also added to nervousness on oil markets in London and Chicago. A survey of UK manufacturers found that rising costs, especially oil, and a deterioration in cashflows hampered growth in the first three months of the year, with most firms reporting they expected turnover and profit growth to slow. The British Chambers of Commerce, which surveyed 6,000 companies, described its findings as “worrying” and warned that the results “highlight the fragility of the recovery”. It said the outlook for manufacturers was becoming increasingly difficult and that confidence had fallen to levels last seen in the depths of the recession. Coming hard on the heels of a closely watched PMI (Purchasing Managers’ Index) survey last week showing that manufacturing confidence had been dented in March, the results will disappoint ministers who are banking on a booming manufacturing sector to offset the struggling services and construction industries, which still remain well below their 2008 peak. However, there was better news yesterday when a survey showed that the construction sector grew strongly in March after its snow-related dip at the end of 2010, despite raw material costs rising again. Without strong growth in manufacturing to generate jobs, unemployment is likely to continue rising, putting even more pressure on the Treasury to slow the pace of public sector cuts. Labour said the survey showed the economy was unprepared for a severe contraction in government spending and a plan B should be considered to boost growth and confidence. A slowdown in manufacturing sales and profits is also expected to persuade the Bank of England’s monetary policy committee to keep rates on hold when it meets on Thursday. While there is pressure to raise rates to cap inflation after it jumped to 4.4% last month, a majority of the committee is believed to be worried about the effect on the economy. The European Central Bank is widely expected to raise rates by 0.25 percentage points to 1.25% at its meeting on Thursday. It has signalled its determination to crush inflationary trends in the eurozone to maintain financial discipline and limit the effect of rising prices. However, a downgrade to the January input cost figures could stay the ECB’s hand. The first draft for January was a shock at 1.7% and analysts said at the time the combination of rising prices and strong growth, driven mainly by Germany, gave the ECB no choice but to raise rates. But the purchasing price index was revised down from 1.5% to 1.3% month-over-month, giving the ECB more leeway to maintain rates at 1%. The BCC has consistently campaigned for Britain to maintain its current loose monetary policy to support businesses that are suffering from the after-effects of the financial crisis. David Kern, the BCC’s chief economist, said that while exports remained strong, businesses operating in the UK found life extremely difficult in the face of the rise in VAT and severe cuts in public spending. He believes that the economy needs to be robust and the recovery secured before the MPC raises rates. He said: “Benefiting from a competitive exchange rate, manufacturing still has the potential to drive the UK recovery. But the international background has become riskier for Britain’s exporters, while the domestic austerity plan will intensify pressures on businesses and consumers. In addition, the mediocre performance of the service sector will hinder the number of new jobs created this year.” Kern added: “Given the underlying uncertainties, the MPC must avoid premature interest rate increases that may worsen risks of a serious setback.” US crude trading was also characterised by jitters among traders, who sent US light crude above $108 a barrel ahead of the open outcry trading session in New York. “Brent is up on Libya, Yemen unrest and the Nigerian election,” said Phil Flynn, analyst at PFGBest Research in Chicago. “US crude is hesitant because there is still a worry that the Federal Reserve might be nearing a rate hike or tighter policy, which would lower liquidity and demand and strengthen the dollar.” Both Brent and US crude prices reacted to Friday’s report showing that US employment registered solid growth for a second month in March and the jobless rate hit a two-year low of 8.8%, providing optimism about oil demand. Manufacturing sector Manufacturing data Economics Recession Interest rates Oil Bank of England Phillip Inman guardian.co.uk

Posted by on April 4, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.