11 Jun 2015
UK getting closer to a rate hike, but not quickly – ING
FXStreet (Barcelona) - James Knightley, Senior Economist at ING, reviews yesterday’s UK data releases and further notes that although the healthy data is encouraging, it doesn’t look strong enough to generate a rate hike this year given Greek uncertainty and GBP strength.
Key Quotes
“Yesterday’s industrial production report was decent at the headline level, rising 0.4% MoM versus the consensus 0.1% forecast, but the mix was a little disappointing. Manufacturing output fell 0.4% MoM versus the market forecast of a 0.1%. This is at odds with business surveys, such as the purchasing managers’ index, which hasn’t reported a contraction since February 2013.”
“Admittedly, the strength of sterling is making the competitive environment tougher internationally for manufacturers, but the improving Eurozone growth outlook should be providing offsetting support given half of all UK exports go there. Add in the improving domestic growth story and we think the manufacturing numbers will get better in the coming months.”
“There was better news from the overnight release of the Royal Institution of Chartered Surveyors report on housing. It showed another increase in buyer demand – it increased at its fastest pace since April 2014 – which backs up consumer confidence surveys suggesting households are more inclined to spend. This in turn suggests that mortgage approvals will continue to rise, adding to the overall sense of a strengthening in consumer activity.”
“In this regard we feel we are getting closer to monetary policy tightening, but probably not quickly enough to generate the rate rise in November that we are currently officially forecasting.”
“We still feel that the strengthening labour market is starting to generate rising wage pressures and in a strong consumer demand environment with improving corporate pricing power there is a growing potential for consumer price inflation to break above the 2% target over the next couple of years. However, the near-term uncertainty associated with Greece, together with the surprise strength of sterling is making the Bank of England cautious.”
“We don’t get the sense that the Bank of England will be keen to raise rates in the next five months, but we continue to doubt that it will wait the twelve months that financial markets pricing is implying.”
Key Quotes
“Yesterday’s industrial production report was decent at the headline level, rising 0.4% MoM versus the consensus 0.1% forecast, but the mix was a little disappointing. Manufacturing output fell 0.4% MoM versus the market forecast of a 0.1%. This is at odds with business surveys, such as the purchasing managers’ index, which hasn’t reported a contraction since February 2013.”
“Admittedly, the strength of sterling is making the competitive environment tougher internationally for manufacturers, but the improving Eurozone growth outlook should be providing offsetting support given half of all UK exports go there. Add in the improving domestic growth story and we think the manufacturing numbers will get better in the coming months.”
“There was better news from the overnight release of the Royal Institution of Chartered Surveyors report on housing. It showed another increase in buyer demand – it increased at its fastest pace since April 2014 – which backs up consumer confidence surveys suggesting households are more inclined to spend. This in turn suggests that mortgage approvals will continue to rise, adding to the overall sense of a strengthening in consumer activity.”
“In this regard we feel we are getting closer to monetary policy tightening, but probably not quickly enough to generate the rate rise in November that we are currently officially forecasting.”
“We still feel that the strengthening labour market is starting to generate rising wage pressures and in a strong consumer demand environment with improving corporate pricing power there is a growing potential for consumer price inflation to break above the 2% target over the next couple of years. However, the near-term uncertainty associated with Greece, together with the surprise strength of sterling is making the Bank of England cautious.”
“We don’t get the sense that the Bank of England will be keen to raise rates in the next five months, but we continue to doubt that it will wait the twelve months that financial markets pricing is implying.”