Inflation: Effect of a rate rise on: Manufacturing industries

INDUSTRIALISTS are deeply sceptical of claims that inflation is under control, but view the prospect of higher interest rates with equanimity, writes David Bowen.

Glynwed International is an engineering conglomerate that flew high in the 1980s but was hit hard by the recession, not least because of large debts.

But Nick Boucher, planning director, says the interest burden has diminished so much that a small rise will not cause problems. Where higher rates could have an impact, he says, is in demand. 'We have to see how they affect consumers. But they are not the only factor in confidence: job security is more important.

In the long run interest rates must follow inflation, and here Mr Boucher is less confident. 'In 18 months labour shortages will appear. That is what will push up inflation.'

Pilkington glass company will also shrug off rate rises, according to its chairman, Sir Antony Pilkington. 'Most of our borrowings are in foreign currency or fixed rate.'

Sir Antony is not concerned about labour shortages, because of increasing automation, but worries about wages.

'Inflation will come back,' he says. 'When people believe inflation is reducing their standard of living, they ask for more money, and if they believe the country is doing well, they want a share.'

Ron Garrick, chief executive of the Weir Group, is not surprised interest rates are edging up in response to inflationary pressures. 'We saw suppliers putting in price increases from January,' he says.

Mr Garrick favours interest rate rises. 'It is important to keep inflation under control. . . . But I am worried that the Government might not mind a year or two of inflation to get the feel-good factor back in the economy. A couple of years' inflation and we would lose our competitiveness.

'My main worry is the lack of growth in the world economy,' he says. 'UK interest rates and the UK generally are not a source of concern. Other parts of the world are the problem.'