CBI chief admits interest rates may have to rise later in year

Interest rates might have to rise later in the year to head off inflationary pressures, the leader of the UK's largest employers' group admitted yesterday.

Richard Lambert, the new director-general of the CBI, urged the Bank of England to leave rates on hold next week, saying consumer confidence was fragile. But he acknowledged a fresh surge in energy prices could force the Monetary Policy Committee to take action to prevent a jump in inflation, which is already well above the Government's 2 per cent target.

"They should hold off for the moment but if new inflationary pressures build up it may have to make a modest adjustment," he told a news conference yesterday. "The important point is the question of consumer confidence at a time when their back pocket is being squeezed. Consumption is at a delicate stage."

The possibility of a rate rise next week is resting on a knife edge after a string of strong economic data, culminating in an estimate that the economy grew by 0.8 per cent in the second quarter of the year.

But Mr Lambert, a former member of the MPC, said there was no sign that soaring energy and utility prices had fed through to higher wage claims. "The important thing is that second-round inflationary pressures remain hard to identify," he said.

The CBI published a survey showing retail sales growth eased slightly this month, although the World Cup continued to lift sales at the start of the month. It said the number of retailers reporting a rise in sales outnumbered those seeing a fall by 7 per cent, down from 9 per cent in June.

The CBI said sales of food and drink and electricals enjoyed brisk growth, helped by warm weather and the World Cup. The survey was conducted between 28 June and 18 July.