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BoE faces UK growth dilemna

Thursday, April 10, 2014 - 02:00

April 10 - British retailer Marks & Spencer has posted its best quarterly performance in clothing for three years, indicating its turnaround plan may finally be gaining traction. As David Pollard reports its fortunes mirror those of the wider UK economy, putting pressure on the central bank to raise interest rates.

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It's been like a second home to generations of British shoppers. But in recent years, Marks and Spencers has struggled to put right a legacy of underinvestment and sell its transformation into a fresher-faced consumer experience. That transformation could finally be paying off. Latest quarterly results show sales in its key clothing department were up 0.6 per cent - their best in three years. Food sales were up 0.1 per cent - they would have been much higher but for the lack of the usual Easter holiday in the period. Along with soaring property prices, it could be a sign of a UK economy getting up a head of steam. Could it be time, then, for the Bank of England to consider raising rates? Peter Dixon of Commerzbank. SOUNDBITE (English), Peter Dixon, Global Equities Economist at Commerzbank, saying: ''I do think the Bank should be looking a little more critically at what's happening in the economy, and asking whether this matches up with the current desire to keep interest rates on hold for a prolonged period of time, because after all, I think the guys at the Bank are heading over to Washington where the IMF is going to tell them that the UK will be the fastest growing G7 economy.'' UK house sales reached a six-year high last month, according to the most recent survey. Prices increased at a rate just shy of an eleven-year record. That's good news for homeowners - not so great for the Bank of England. It says it's on the lookout for prices getting out of control. And that it'll first try to curb mortgage lending directly rather than hike rates. SOUNDBITE (English), Peter Dixon, Global Equities Economist at Commerzbank, saying: ''Higher interest rates would possibly help, because it would send a shot across the bows of those investors who are loading up on cheap debt to fund house purchases. But I think that there's also a sense that perhaps the government's Help To Buy scheme is fuelling demand at a time when supply remains constrained. So either you have to curtail the Help To Buy or you do significant increase in supply and both of those things are outside of the Bank of England's control.'' But a hike might not come for some time. At its latest meeting, the Bank kept rates on hold. Most economists don't see an increase for another year at the earliest.

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BoE faces UK growth dilemna

Thursday, April 10, 2014 - 02:00