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Summary of the Weekend’s News:

Sunday Stories

Sunday Times

• In place of David Smith, Richard Lambert, director-general of the CBI and former Monetary Policy Committee (MPC)

member, writes about last week’s rate decision. He says we are left with two big questions. Why did the Committee feel it

necessary to move at this time, without taking another month or two to prepare the markets for a rise? And does the

change represent only a precautionary touch on the brakes, or might there be more to come? He says that maybe they

revised down their estimates of the degree of slack left in the economy. Or perhaps they have become a bit more worried

about import prices which, excluding oil and erratic items, now appear to have come to the end of a protracted period of

decline that has lasted most of the past decade. Alternatively, they might simply have decided that a modest rate rise had

become inevitable in the coming months, and that they might as well get it out of the way – even at the price of surprising

the markets.

• The paper reports that UK industry is facing its worst-ever rise in energy prices in the run-up to the round of contract

renewals this October. Two-thirds of all industrial electricity contracts are up for renewal between now and October 1, but

many firms have yet to put new contracts in place, according to energy brokers. Price hikes of up to 40% are likely they

say.

Telegraph

• Roger Bootle writes that the current turmoil in the Middle East has led some analysts to predict that crude might reach

$125 a barrel. However, higher oil prices would also increase the huge surpluses run up by the oil-producing countries.

Bootle notes that income is being transferred from the oil consumers to the oil producers. Because the oil consumers tend

to spend their income whereas the oil producers do not, this transfer potentially has a depressing effect on world economic

activity. He asks what would happen if the oil producers spent their surpluses. Most significantly, the growth of the world

economy would be boosted. Increased spending within the domestic economies would stimulate activity there, but, of

course, reducing the surpluses means spending money on foreign-produced goods and services, and that will boost

activity abroad. In the process, this would increase inflationary pressures around the world and tend to put upward

pressure on world interest rates.

Could a burst of spending by the oil producers even solve the problem of the American current account deficit and

thereby relieve the threat to the dollar? Bootle thinks this is unlikely as comparatively little of the oil producers’

spending is directed towards the US. So, “whichever way you look at it, it is difficult to escape the conclusion that

the problem of world imbalances can be corrected only with some help from a weaker dollar."

Summary of Overnight News:

• London – Leading shares are seen opening lower this morning, reflecting disappointment at the US market's failure to

hang on to gains on Friday, with interest rate concerns continuing to weigh on both sides of the Atlantic, dealers said.

• US stocks ended slightly lower on Friday night, with cautious investors dragging indices well below their opening highs,

unwilling to trust that a benign monthly employment report was enough to keep the Fed from raising interest rates this

week, traders said.

USA

Figures out Today:

20:00 US consumer credit (Jun) $bn 4.4

• The attention focuses on Tuesday’s FOMC rate decision.

Figures out Today:

09:30 Industrial production (Jun) %m/m 0.0 0.3

09:30 Manufacturing production (Jun) %m/m 0.2 0.5

EURO US DOLLAR @ 1.2865 GB POUND US DOLLAR @ 1.9048 GB POUND EURO @ 1.4806 USDJPY @ 114.75

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