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Business leaders believe any move beyond a 5% rate will be unacceptable
The UK base interest rate is expected to rise once more this year, despite being left at 4.75% by the Bank of England Monetary Policy Committee at its monthly meeting last week.
Most observers are betting on a rise to 5% in November and then the rate remaining stable for some time to come. The pause will provide temporary relief for both retail and manufacturing businesses where signals from the market continue to paint a mixed picture.
High street retail sales rose strongly in July, up 3.4% according to the British Retail Consortium, but then the rate of growth fell back to 2.5% in August. Most industries would be reasonably happy with that as a monthly growth figure but Kevin Hawkins, BRC director general, described the outlook for the next few months as "very uncertain".
On the other hand, manufacturing industry is facing increased demand with the level of order books at its best for 20 months, according to the CBI. The increase is mainly due to stronger demand in the capital goods sector, which includes shipbuilding, aerospace and industrial machinery, coupled with a more modest improvement in consumer goods.
Most worrying for anybody concerned about inflation, which is the MPC's sole criterion for deciding the interest rate level, is the continued strong performance of the housing market. Both Halifax and Nationwide reported increased growth in August and the annual rate of house price inflation is expected to be between 5% and 6% by the year end, depending on who you listen to.
"If the strong growth in the housing market continues for another month, then this, coupled with the next quarterly inflation report, makes November the most likely time for another quarter point rise," according to Drew Wotherspoon of mortgage brokers John Charcol.
Most business leaders believe 5% will be sustainable but certainly would not want to see rates goes above that. The CBI welcomed last week's decision to keep rates on hold. But one sector that is truly suffering is new car sales, down by 4.3% year-to-date and with little expectation of a bumper September, which is usually the second biggest month of the year.
A further rise in rates is likely to depress the market still further - good news for fleet managers looking to drive a hard bargain on replacement cars this quarter but not for the retail motor industry as a whole.
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