Article / 04 August 2016 at 5:00 GMT

3 Numbers: Bank of England poised to cut rates

editor/analyst /
United States
  • A Brexit-induced rate cut is projected for today’s BoE policy announcement
  • US jobless claims continue to anticipate growth for the labour market 
  • Factory orders in the US appear headed for a second monthly decline in June

By James Picerno

The Bank of England’s policy announcement is the main event for today’s busy schedule of economic news. We’ll also see several US reports, including the weekly numbers on jobless claims and the June data for factory orders.

 On the cards ... leaving monetary policy unchanged today would likely challenge
the Bank of England's credibility. Photo: iStock

UK: Bank of England Policy Announcement & Minutes (1100 GMT) The case continued to strengthen for expecting a UK recession in the wake of this week's survey data releases for the manufacturing and services sectors. On both fronts, the PMIs fell sharply in the July profiles, sliding well below the neutral 50 mark that separates growth from contraction.

“After three-and-a-half years of growth, the services sector returned to contraction as Brexit contagion suppressed new orders and overall output at rates last seen during the financial crisis in 2008-2009,” a Markit economist advised. The stumble in last month’s Manufacturing PMI was no less troubling.

The National Institute of Economic and Social Research estimates the odds of recession at 50/50 within the next 18 months as the UK confronts the likelihood of enduring a “marked economic slowdown.” The catalyst? “This is the short-term economic consequence of the vote to leave the EU”, a NIESR spokesman told the BBC.

The mounting evidence of slowing and perhaps negative growth in the near term strongly suggest that the Bank of England will unveil an interest-rate cut in today’s monetary policy announcement.’s consensus forecast sees the policy rate falling by 25 basis points to 0.25%.

“The collapse in the [services] business activity index to its lowest level since March 2009 shows that uncertainty about the UK’s future trading arrangements has had a more malign impact on the UK economy than the Eurozone’s debt crisis ever did,” said a UK economist at Pantheon Macro.

By that standard, leaving monetary policy unchanged today would challenge the central bank’s credibility and draw cries of irresponsibility from the markets and beyond.  

US: Initial Jobless Claims (1230 GMT) Yesterday’s ADP report on private payrolls in July points to moderate but steady growth in the labour market. US companies added 179,000 positions last month, which is a middling rise in terms of the numbers posted so far this year.

“Job growth remains strong, but is moderating as the economy approaches full employment,” said the chief economist at Moody’s Analytics, which co-produces the data with ADP. He added that filling open positions is becoming more challenging. “The nation’s biggest economic problem will soon be the lack of available workers.”

Today’s weekly update on new filings for unemployment benefits will likely echo that point.’s consensus forecast sees a fractional dip in new claims to 265,000, which is close to the lowest level in decades.

The labour market’s growth rate is gradually slowing, but job growth still looks set to endure. Meantime, jobless claims – a leading indicator for payrolls – is effectively projecting more of the same: relatively steady if gently declining growth.

The comparatively rosy profile for payrolls contrasts with last week’s disappointing “advance” estimate of second-quarter GDP. The tepid 1.2% increase, which came in well below expectations, follows an even weaker 0.8% rise in Q1. The soft back-to-back quarters suggest that recession risk is on the rise, according to some analysts.

But recent figures for the labour market beg to differ and today’s weekly report on jobless claims isn’t expected to break with this trend.

US: Factory Orders (1400 GMT) Survey numbers show that manufacturing output accelerated to an eight-month high in July. “Output growth picked up markedly since June, driven by a robust and accelerated expansion of incoming new work,” Markit Economics noted earlier this week.

The outlook isn’t quite so strong via the competing ISM Manufacturing Index, which reflected a slightly softer but still positive reading for last month.

Today’s question: Will the hard data on factory orders for June break out of the lethargic pattern of late? No, at least not according to market expectations.’s consensus forecast sees the recent weakness in factory orders moving deeper into the red for June. If the projected 1.8% monthly decline holds, the slide will mark the first run of two consecutive retreats this year.

Even worse, the crowd’s monthly forecast implies a steeper loss in the year-on-year change: a decline of 5.7% in June vs. the year-earlier level – the biggest annual setback in over a year.

The survey figures hint at modestly better days ahead, but economists aren’t expecting any upbeat clues for looking forward in today’s release on factory orders at the close of the second quarter.

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– Edited by Gayle Bryant

James Picerno is a macro analyst/editor at Follow James or post your comment below to engage with Saxo Bank's social trading platform.


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