UK data indicates two-speed economy

Businesses outside Britain's booming retail sector believe inflation in their sectors is running at just 1 per cent, well below the official figure of 3.6 per cent, it was claimed yesterday.

Marketing managers from a wide range of industries said they expected price rises of only 1 per cent on average this year, according to a survey.

However, firms from the retail sector surveyed by the Chartered Institute of Marketing predicted inflation of 3 per cent.

Official figures show headline inflation is running at 3.6 per cent, while the underlying measure, which excludes mortgage costs, is 2.7 per cent.

The CIM said the low-inflation forecast by the non-retail sectors stemmed from the strength of sterling.

The low inflation in these sectors should feed through to the retail prices index, which should fall to 2 per cent next year, it said.

The measure of inflation that excludes mortgage payments and all indirect taxes is already running at 2 per cent.

CIM economic adviser Prof Douglas McWilliams said: "The UK appears to be experiencing the second phase of an economic upswing.

"As higher interest rates start to bite and sales financed from building society windfalls slow down, it appears that most marketers are looking forward to a period of consolidation, with sales growth slowing down."

The report also revealed the service sector was more optimistic about growing sales than the manufacturing sector.

The league table was led by the category of business, tourism, restaurants and communications, with 13.5 per cent predicting an increase, while 11.9 per cent of retailers sounded bullish.

This contrasted with 7.9 per cent of the electronic sector, 7.4 per cent in the vehicle industry and 7.1 per cent among machinery and equipment firms.

The inflation and sales forecasts will be taken as further evidence that the UK is suffering from a two-speed economy.

Mr Steve Cuthbert, director general of the CIM, said the low-inflation forecast indicated it would be possible to achieve sustainable growth in the medium term.