An exciting week ahead, with the Bank of England’s “Super Thursday” meeting, as well as the triad of PMI releases.
On Thursday the MPC will meet to set interest rates, as well as release its quarterly inflation report. The outcome of this meeting has been the source of much discussion in recent months, following the relative shock 5-3 vote in the Bank’s last meeting in June. Rising inflation and an enduring strong labour market, coupled with some fairly hawkish comments from various Bank members, most notably deputy chief economist Andy Haldane, had made a hike in August more and more conceivable.
However, last week’s disappointing GDP data, combined with lacklustre wage growth (which helped CPI dip back to 2.6% in June) has, in our opinion, made a rate hike this time unlikely. Ultimately the MPC’s decision will be based on the trade-off between above-target inflation and the margin of spare capacity in the economy, and recent data we believes justifies the bank maintaining the base rate at its current record low level of 0.25%.
This week also sees the monthly release of PMIs for manufacturing, services and construction. The manufacturing indicator dropped to a three month low of 54.3 in June, with a slowdown on both the domestic and export front behind this drop. Despite this fall, it should be noted that this reading remains well above the 50 no change mark and the long run average of 51.6, and we expect to see a similar print this month.
Elsewhere the services and construction PMIs also decelerated last month, and so we will be keeping an eye on their performance, for further indication of how the economy is fairing.