LONDON: There is widespread anticipation of an interest rate cut -- as early as February 2006 -- among analysts, who say it is necessary to pull the economy out of the doldrums. They point out that growth has slowed down to its lowest in a decade, while consumer spending is shying away from any evident pick-up.
These analysts also feel that the regime unveiled in the pre-budget report justifies a rate cut, which only can help a predicted GDP growth of 2.25 per cent.
This is notwithstanding the encouraging show in the labour market where employment potential has improved, wages are rising and inflationary pressures are prevailing across business.
There are, however, those who dissent. They feel the base interest rate will remain at 4.5 per cent for the foreseeable future as there is visible improvement in growth and the planners are concerned about a longer-term outlook for inflation.
Supporters of the rate cut are encouraged by a veiled call for lower rates made by a member of the Monetary Policy Committee, Stephen Nickell.
There is no cause for worry over a tax hike in the March budget, the analysts feel, as indicated by the pre-budget report.
The retail sector is bound to lag in the coming year in spite of a temporary reprieve seen during the Christmas and holiday days, say the analysts. Cost pressures, inflation and price instability contribute to a no-growth scenario, while the dollar that is gaining strength in the last few months can offset profits.
Retailers have been unabashedly calling for a rate cut, as otherwise they feel consumers will remain hesitant to make any spending.
Among the sectors that will be hardest hit will be home improvements and clothing.
Analysts also expect some level of polarisation as in the case of Asda and J. Sainsbury. Asda, say analysts, will have to concede some ground to the revitalised Sainsbury.
Industry watchers expect a lot to happen in the automotive sector at the global level in 2006 -- like General Motors giving the No1 slot to Japanese carmaker Toyota. The world's top carmaker is in deep trouble, although it has been playing down the seriousness. There are critics of the company, who love to see the behemoth filing for protection under bankruptcy laws. Toyota has already indicated that it is increasing its production to 9 million units in 2006.
Analysts expect some level of consolidation in the sector with some minor mergers. Major players will play it safe through the year.
British automotive industry is not likely to see any major changes as China's Nanjing Auto, which has acquired the Longbridge plant of Land Rover, is not likely to restart production soon.
Meanwhile more of British pubs are likely to change hands. Punch Taverns, analysts say, will definitely sell much of its Spirit estate, while entrepreneur Robert Tchenguiz, who has money and time, will look at those groups which cannot turn around their underperforming businesses.
One of the major gainers during the year will be the gambling industry aided by the scrapping of the 24-hour rule and other new enactments, which permit casinos to have more slot machines and higher payouts.
The year will be particularly rewarding for BAE Systems in the aeronautics sector. Its contract to supply Eurofighter jets to Saudi Arabian defence forces is seen as a major happening in the company's year-ahead performance.
Posted
on : Wed, 28 Dec 2005 20:05 GMT | Mortgages News
By : Pippa Fielding
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