U.K. DATA DEPRESS RATE CUT OUTLOOK - ANALYSTS
  Today's U.K. Economic data have pushed
  the chances of another base lending rate cut from the current
  nine pct further into the distance, analysts said.
      A record fall in unemployment and good manufacturing
  production data showed that the economy is still strong and
  does not need a fillip from lower rates.
      News that underlying earnings are rising 7.75 pct annually,
  taken together with higher than expected bank lending and money
  supply growth, revived inflation worries and monetarist
  arguments against easier credit, they said.
      "The timetable on lower interest rates is being pushed back
  all the while. The strength of the economy and broad money
  growth are making it more difficult to see one in the near
  term," said Chase Manhattan Securities economist Robin Marshall.
      Analysts have reached this conclusion despite yesterday's
  mortgage rate cuts for new borrowers, which building societies
  said were a sign of the expected near term trend for U.K.
  Rates.
      It also counters the optimistic forecasts of last week that
  a post-general election cut was imminent, supported by such
  optimistic economic news as May's record reserves rise which
  mirrored the Bank of England efforts to cap sterling's
  strength.
      The gilt market lost nearly half a point as enthusiasm
  about May's 64,300 fall in the seasonally adjusted unemployment
  rate, to 2.95 mln or 10.6 pct of the workforce, was rapidly
  replaced by dismay at the continued high level of underlying
  average earnings in April, dealers said.
      The upset was compounded by news that sterling bank lending
  rose 2.7 billion stg in May, above forecast, and that the Bank
  of England looks likely to have to sell more gilts to offset
  the impact on domestic money supply of its current
  intervention.
      "The gilt market reaction was correct," said Bill Martin,
  chief U.K. Economist at brokers Phillips and Drew.
      "That's very important ... It shows the economy in a very
  good state indeed," Skeoch said.
      "There's no reason to get worries about inflationary
  pressures because they're very subdued." Unit wage cost rises
  were better than expected, just one pct higher in the year to
  April, and it was these costs rather than average earnings
  which were potentially inflationary, he added.
      "I don't think these average earnings numbers are a major
  problem," agreed Chase Manhattan's Marshall.
      But he said the gilts market was likely to remain worried
  about the funding implications of recent intervention.
      He said the inflow of foreign money into sterling assets
  earlier this year, attracted by growth prospects and hopes that
  the ruling Conservatives would win last week's election, now
  looks likely to prevent a base rate cut as the authorities try
  to prevent these funds swelling the domestic money system.
      However, David Owen, U.K. Economist at Kleinwort Grieveson
  Securities, said any fresh sterling strength would still
  trigger a base rate cut and that today's figures did not signal
  higher inflation this year.
      "Wage increases are being offset by productivity growth. As
  long as that continues we're okay," he added.
  

