Article / 11 May 2017 at 4:59 GMT

3 Numbers: Will the BoE inflation report signal a rate hike?

editor/analyst / CapitalSpectator.com
United States
  • UK industrial output will show a dip in March, but stay positive in annual terms
  • April industrial output will look much better, based on PMI data
  • The BoE Inflation Report may give clues on rate hike plans for later this year
  • US jobless claims will likely reaffirm the upbeat outlook in recent employment data

By James Picerno

The UK economy is in the spotlight today with the release of the monthly report on industrial production for March, followed by the Bank of England’s monetary policy announcement and quarterly inflation report. Later, the weekly update on US jobless claims will be widely read in the wake of upbeat employment numbers in recent days.

UK: Industrial Production (0830 GMT) Brexit concerns are starting to worry the crowd (again), but survey data for manufacturing still suggests solid growth ahead.

Markit’s PMI data for April, in fact, perked up to a three-year high. Sentiment doesn’t always lead to stronger hard data, of course, but for the moment the mood in the manufacturing sector looks encouraging.

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 US jobless claims data should add to the run of bullish numbers for US jobs, and lend support to the case for a Fed rate hike in June. Photo: Shutterstock

“The UK manufacturing sector made a solid start to the second quarter. Growth of output, new orders and employment all gathered pace, driven higher by the continued strength of the domestic market,” noted an IHS Markit economist last week. He added that the survey data show a “solid bounce in new export business, as the weak sterling exchange rate helped manufacturers take full advantage of the recent signs of revival in the global economy, and especially the Eurozone, which is enjoying its best growth spell for six years.”

Will today’s hard data on industrial production for March fall in line with the upbeat PMI report? Not for the monthly comparison, according to Econoday.com’s consensus forecast, which sees output slumping 0.3% and the manufacturing component easing 0.2% at the end of the first quarter. On the other hand, the year-over-year trend on both fronts is projected to remain comfortably positive through March, albeit at a slightly softer pace vs. February.

Keep in mind, however, that if the PMI numbers are accurate, the hard data for April will look even stronger in next month's release.

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UK: Bank of England Inflation Report (1100 GMT) The market’s expecting that the Bank of England (BoE) will leave interest rates unchanged in today’s monetary policy announcement. But with inflation moving above the central bank’s 2.0% target in recent months, analysts are wondering how long the BoE can sit still.

One factor that’s probably keeping policy steady for now is the uncertainty over next month’s general election. Prime Minister May’s Conservatives are favoured to win, suggesting a bias for hard-Brexit negotiations will prevail. In any case, central bankers are loathe to be seen hiking rates on the eve of elections for fear of being charged with playing politics.

But if there’s a rate hike coming after the election, today’s inflation report from BoE may lay the groundwork. A key question is whether the central bank expects the recent rise in consumer inflation to stabilize or accelerate further in the second half of this year into 2018.

Note that TradingFloor.com’s econometric data for the April consumer price report that’s due next week expects that inflation will tick up to 2.4%, the highest since 2013. Does the BoE also agree that inflation’s poised to edge higher in the months ahead? Stay tuned for the answer to that.

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US: Initial Jobless Claims (1230 GMT) The US labour market is showing signs of strength again, and today’s weekly update on new filings for unemployment benefits is expected to reaffirm the rebound.

Last week we learned that payrolls in April increased sharply relative to a weak gain in March. On Monday, two multi-factor measures of labour activity confirmed last month’s revival. The Fed’s Labor Market Conditions Index and the Conference Board’s Employment Trends Index posted encouraging numbers for April, further signalling that the second quarter is off to a solid start following a sluggish Q1.

Econoday.com’s consensus forecast sees claims edging up by 6,000 to a seasonally adjusted 244,000 in today's release. But that’s still close to a multi-decade low of 227,000, which was set earlier this year.

The main takeaway: jobless claims are set to corroborate the recent run of bullish numbers for US employment growth. In turn, the news will provide the Federal Reserve with another round of numbers for considering a rate hike at next month's Federal Open Market Committee meeting.

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– Edited by Robert Ryan

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

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