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growth with rising prices. More immediately, my spies in the City of London say that the markets have priced in three quarter-point rises in interest rates during 2011 with the first increase of 0.25 per cent sometime in August. This is reflected in the MPC’s immediate concern over the uncomfortably high rate of inflation with CPI inflation at 3.7 per cent in December 2010. It has averaged three per cent since the start of 2008, significantly above the government’s target of two per cent. And, with the standard rate of VAT rising to 20 per cent in January and recent increases in world commodity and energy prices, inflation is likely, according to the Governor of the Bank of England, to rise to somewhere between 4 per cent and 5 per cent over the next few months before falling back in 2012. Perhaps significantly, the minutes of the Monetary Policy

Committee’s January 2011 meeting show that Andrew Sentence, for long the lone voice in the wilderness calling for an increase in interest rates, was joined by another member of the committee. There was, however, some good news. The purchasing

managers’ index (PMI) revealed that UK construction activity recovered in January on the back of better weather. The index rose to 53.7 in January, up from December’s 49.1 – anything below 50 represents a contraction of activity - and the December figure was the first fall in ten months, reflecting the severe wintry weather during the month. In addition, the manufacturing PMI jumped to 62.0 in January from December’s upwardly revised reading of 58.7. The January reading was the highest since records began in 1992. Meanwhile, the Confederation of British Industry announced in

February that it expects UK GDP to expand by 1.8 per cent in 2011 compared to the two per cent they forecast in December 2010. Growth in the first quarter of 2011 is forecast at 0.2 per cent rather than their earlier prediction of 0.3 per cent. In addition, they expect interest rates to start rising in the second quarter of 2011 rather than in the third quarter as most people have been expecting.

TRANSPORT HEADACHES It has been pointed out to me, following my comments on the price of petrol and diesel in last month’s issue, that there is a further sting in the tail of the fuel duty story. Road haulage is, of course, a significant part of feed manufacturers’ distribution costs. Under current plans, the duty payable on petrol and diesel will

rise by one per cent above the rate of inflation each April for the next four years, starting next month. This has led to a growing volume of demands for a ‘fuel duty stabiliser’ whereby fuels duty would be reduced to compensate for any rise in pump prices caused by either increasing crude oil prices or increases in VAT. There has also been some suggestion that people in remote areas might qualify for a discount although how this would work is far from clear. At the end of January, the Chancellor gave what was described

as ‘his strongest signal yet’ that he was considering overriding the one penny rise in fuel duty due to come into effect in April. The Business Secretary Mr Cable was, however, ‘lukewarm’ on the idea of a fuel stabiliser, claiming that there would be technical difficulties in introducing it. Amongst those calling for a fuel duty stabiliser is Boris Johnson.

The eccentrically coiffured Mayor of London said that if he were the government, he would think seriously about a fuel duty stabiliser ‘because when it costs more to fill your tank than to fly to Rome,

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