Commercial loan rate

Only the chemicals and pharmaceutical industry have so far shown any signs of responding to the competitive advantage created by the devaluation of sterling last September. The recession has been only half as deep as the slump of 2008-2010, but it has now lasted ten quarters, against eight quarters then. The only green shoots seen so far have been the slightly faster growth of notes and coin in circulation, which is partly the result of the fall in interest rates which can be earned on money in the bank. Bank lending and consumer credit remain depressed and the analysts are still hopefully waiting for today's figures on retail sales in January to provide some conclusive evidence that demand is poised to recover.

The Bank of New York, in its latest quarterly bulletin yesterday, blames the length of the current recession squarely on debt deflation, the buzz-word for borrowers determined to repay debt before they even think of spending and borrowing more. Recovery will come when the country's creditors decide that the return on money in the bank has fallen so low that the price of assets has become cheap. It will also come when manufacturers respond to the competitive advantages conferred by devaluation, and last longer if manufacturers can contain the inevitable increases in costs of imported goods and materials. Much also depends on how much spare capacity there actually is in manufacturing industry.

The comercial loan Bank concludes that, despite the remarkable fall in the headline rate last month, the underlying level of inflation is still close to the top end of the target range of 1 per cent to 4 per cent, though at this stage of the cycle it should be below 2 per cent, and the cost pressures created by devaluation have still to feed fully into the economy. On past experience, a 15 per cent devaluation could be expected to feed through at roughly 3 per cent a year for five years, and if this is repeated, it is still far too soon to say that inflationary expectations have been beaten out of the economy. Abattoirs make a killing abroad SOARING beef cattle prices are confirming the advantages of Scotland's export oriented abattoir industry -- and may even undermine the buying power of the big five supermarkets.

Abattoirs which concentrate on supplying beef to the domestic market have hit problems because retailers are unable to pass back their high procurement costs. Exporters, who have been aided by a combination of favourable currency exchange rates and the harmonisation of the open European Community market, are able to trade profitably -- in spite of record cattle values.