BoE likely to keep rates on hold as growth slows

  • Slower economic growth likely to keep UK interest rates unchanged
  • Philly Fed Index to tick higher, offering another clue for a recovery in manufacturing
  • US jobless claims set to rise, but overall level to stay close to a multi-decade low

The market’s expecting that the Bank of England will continue to delay hiking rates at today’s policy announcement, which will be accompanied by the release of minutes from the last Monetary Policy Committee meeting.

Later, two US reports will offer a fresh perspective on the state of US macro: the weekly update on jobless claims and the monthly read on manufacturing activity in the Philly Fed’s region.

UK: Bank of England Announcement (1200 GMT) Economic growth in the UK continued to inch lower last month, according to the National Institute of Economic and Social Research, a consultancy in London. The firm’s monthly estimate of GDP eased to a 0.3% pace for the three months through February. The deceleration marks the third consecutive downtick, leaving the projection at the slowest rate since late 2012.

“It looks as if output growth at the start of 2016 has been subdued,” said Jack Meaning, a NIESR research fellow, last week. “However, it appears that December 2015 may have been a low point for GDP and as this drops out of the calculation of quarterly growth rates, output growth for the first quarter may strengthen slightly.”

Nonetheless, it’s widely expected that the Bank of England will leave interest rates unchanged in today’s policy announcement. If the crowd is right, the BoE will reach a milestone: seven years of leaving policy unchanged in terms of interest rates.

Some analysts argue that it’s time to start squeezing monetary policy. Exhibit A for the hawks is the labour market, which is still posting a healthy growth rate – the employment rate in the UK for the three months through January touched a record high of 74.1%. But the robust job market isn’t giving the BoE an excuse to raise rates as a pre-emptive move to head off rising inflation. Wage growth, for instance, has slowed lately, sticking to a 2.0% pace in recent months.

Meanwhile, consumer prices at the headline level are still crawling at a tepid 0.3% year-over-year pace while core inflation is holding steady in the low 1% range.

BoE’s near-zero policy rate of 0.5% won’t last forever, of course. But there’s still no compelling reason in the data to suggest that the policy rate is set to rise any time soon.


US: Philadelphia Fed Manufacturing Index (1230 GMT) Is the manufacturing sector’s recession fading? Recent updates hint at the possibility. Today’s report for the Philly Fed’s region is expected to provide another clue for thinking that the sector’s finally on the mend.

That was the message in Tuesday’s release from the New York Fed. The bank reported that its regional manufacturing yardstick rebounded in March to a slightly positive reading – the first above-zero print since last summer. Yesterday’s US report on industrial activity for last month also revealed firmer manufacturing data: national output for the sector posted its second monthly advance in February.

“It does seem that after a recent spell of weakness, manufacturing seems to have found a base,” noted the senior economist at 4cast Inc. “This strengthens the tentative perception that manufacturing is making a firmer step in the first quarter, which is encouraging.”

The question is whether today’s data from the Philly Fed will support the narrative that manufacturing is showing signs of emerging from recessionary conditions.’s consensus forecast calls for a bit of progress, albeit weakly.

The crowd’s looking for the Philly Fed Index to inch higher to a negative 1.4 print. That still aligns with contraction, but if the prediction holds, the report will reflect the highest reading in seven months. If so, the case will strengthen a bit for arguing that manufacturing’s on track for a spring rebound.


US: Initial Jobless Claims (1230 GMT) Some pundits are starting to question the bullish signal in initial jobless claims, charging that the numbers look too good. The economy appears to be in no danger of falling into a new recession, but the outlook for growth remains modest at best. Indeed, the Atlanta Fed earlier this week lowered its first-quarter GDP growth estimate to 1.9%. That’s enough to keep the world’s biggest economy moving forward, but it’s still a sluggish pace by historical standards.

Nonetheless, new filings for unemployment benefits remain at the forefront for bullish macro signals. Claims fell in last week’s release, dipping close to a new multi-decade low. The surprisingly sharp drop in filings to a seasonally adjusted 259,000 for the first week of March strongly suggests that the labour market remains poised to expand for the near-term future.

“The labour market continues to be the light shining through the foggy state of the global economy,” the chief investment officer at Plante Moran Financial Advisors told Reuters last week.

Claims are expected to rise 11,000 to 270,000 in today’s update, according to’s consensus forecast. But that still translates into a robust forecast of growth job creation. Conspiracy theorists and perm-bears think the claims data is a sham. But there’s no supporting evidence beyond rank speculation and so it’s reasonable to take the numbers at face value until or if someone presents a persuasive case to the contrary.



Source: Saxo Group


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