TUC slump warning

THE BANK of England comes under fresh fire over its recent decision to increase the cost of borrowing in a report published today. The new attack, from the TUC, came as the latest figures confirmed that inflation at the factory gate has all but vanished while spending on the high street could be slowing down.

The TUC insists that, contrary to statements from the Bank and the Treasury, recent pay deals have been "responsible and moderate". Average earnings growth also had to be set against the cost of living, now rising at 4 per cent. The general secretary, John Monks, said wage responsibility must lie with company directors.

In its report, the TUC also argues that as manufacturing was moving into recession, the service sector of the economy was slowing down.

Yesterday's figures made plain once again the absence of any kind ofinflationary pressure in manufacturing. "Core" prices charged by manufacturers, excluding the erratic food, drink and petroleum components, were the same last month as a year earlier.

It was the first time in 31 years that underlying inflation at the factory gate has fallen to zero. This is due to the falling cost of materials, which has allowed manufacturers to offset their higher wage bills. Prices rose 0.3 per cent in May but remained 8.9 per cent lower than a year earlier.

If sales growth on the high street slows down, the good news on inflation could yet feed through to retail prices. In its May survey, the British Retail Consortium reported stable sales growth. The value of sales rose 6.4 per cent in the year to May, down from 8.8 per cent in April.

Like-for-like" sales growth dipped from 5.7 per cent to 3.7 per cent.

However, yesterday's figures will be of little interest to the Bank's Monetary Policy Committee compared to the next official statistics on average earnings and the jobs market, due next week. These will reveal how far the surge in measured wage growth was due to one-off bonuses, as the TUC alleges in today's report.