Best of the Week
Most Popular
1.RED ALERT: Paris Terror Attacks - What to Expect Next - STRATFOR
2.Paris Terror Attacks, Death Pangs of a Dying Religion, and Impact on BrExit EU Referendum - Nadeem_Walayat
3.Paris Terror Attacks, Islamic State Attempting to Spark Civil War in France - Nadeem_Walayat
4.Three Shocking Charts That Prove Gold Price Rally Is Coming - Sean Brodrick
5.Stock Market Nifty-Fifty Becomes Fab-Five; Return of the 'Four Horseman' - Mike_Shedlock
6.Africa Population Explosion - Why Europe's Migrant Crisis is Going to Get A Lot Worse - Video - Nadeem_Walayat
7.Gold Mining Stocks May Be The Buy Of The Century - Jeff_Berwick
8.Grandmaster Putin Beats Uncle Sam at His Own Game - Mike_Whitney
9.BRICS? No, CRISIS - Raymond_Matison
10.UK Housing Market Affordability, House Prices Momentum and Trend Forecast - Nadeem_Walayat
Last 5 days
A Black Friday for Gold Prices - 29th Nov 15
Politicians Driving The World Towards War - Fourth Turning - 29th Nov 15
Stock Market Down Monday, Gold Price Bottoming? - 29th Nov 15
Turkey Downs Russian Jet to Draw NATO and US Deeper into Syrian Quagmire - 28th Nov 15
Stock Market Quiet Week as Primary 5 Continues - 28th Nov 15
Black Friday, Weekend for Europe's Migrants - 28th Nov 15
HUI and Gold - Who's Leading Whom? - 28th Nov 15
Gold And Silver - No Ending Action, But End May Be Near - 28th Nov 15
Social and Cultural Distress Dividing The Nation - Fourth Turning - 28th Nov 15
Sheffield Houses Prices 2015, Best Estate Agents As Rated by Buyers and Sellers - 28th Nov 15
Stock Market Top Valuations, at a Critical Juncture - 27th Nov 15
The Top Shopping Opportunity on Black Friday - 27th Nov 15
Economics Is About Scarcity, Property, and Relationships - 27th Nov 15
UK Immigration Crisis Hits New Extreme of 336k Net Migration, up 32% on 2014 - 27th Nov 15
Vauxhall Zafira B Fire Danger Recall - What to Do Video - 26th Nov 15
Triggers In US Dollar Collapse - 26th Nov 15
Apple Stock is a 10-Year Short - Bear Market Environment - 26th Nov 15
U.S. Federal Reserve Rate Hike - 26th Nov 15
George Osborne's War on Buy to Let Sector Trending Towards Doomsday - 26th Nov 15
Will Turkey Drag NATO into War With Russia in Syria? - 25th Nov 15
George Osborne’s Autumn Statement and Spending Review Full Text - 25th Nov 15
Will Fresh QE From ECB Boost Gold? - 25th Nov 15
Sheffield, Yorkshire and Humberside House Prices Forecast 2016-2018 - 25th Nov 15
Investors Watch Out For The Auto Industry… - 24th Nov 15
BEA Revises 3rd Quarter 2015 US GDP Economic Growth Upward to 2.07% - 24th Nov 15
Stock Market Supports Are Being Broken - 24th Nov 15
Is Gold Price on the Verge of a Breakout? - 24th Nov 15
Fed’s Tarullo: U.S. Interest Rates Liftoff Should Wait for Signs of Inflation - 24th Nov 15
Silver Price, COT, US Dollar Updates and More - 24th Nov 15
UK Regional House Prices Analysis - Video - 23rd Nov 15
Crude Oil Swinging For The Fences - A 20 to 1 Option Play - 23rd Nov 15
US Dollar, CRB, Oil, Gas, Copper and Gold - The Chartology of Deflation - 23rd Nov 15
UK Regional House Prices, Cheapest and Most Expensive Property Markets - 23rd Nov 15
Stock Market Rally Losing Momentum? - 23rd Nov 15
Will Gold Price Drop Below $1000 Soon? - 23rd Nov 15
Gold and Silver Sector Big Green Light and Low Risk Entry Setup... - 23rd Nov 15

Free Instant Analysis

Free Instant Technical Analysis

Market Oracle FREE Newsletter

Reasons to Get Excited About Japanese Stocks

BOE Keeps UK Interest Rates on Hold in April But likely to Rise in May

Interest-Rates / UK Interest Rates Apr 05, 2007 - 08:39 PM GMT

By: Victoria_Marklew

Interest-Rates As expected, the Bank of England's (BoE) Monetary Policy Committee (MPC) left its policy repo rate unchanged at 5.25% this morning. However, as we've noted before (see Daily Global Commentary, March 21: UK: Rate Hike Expectations Ease but Don't Rule Out Further Tightening ), the BoE concluded in its February Inflation Report that inflation would be slightly above the 2.0% target in two years' time if the repo rate stayed at 5.25%. Given the members' concerns about underlying inflation pressures and about an increase in firms' pricing power, recent data suggest the odds still favor another rate hike in May.

Despite three rate hikes since August, the housing market remains pretty robust, although BoE Governor King noted last week that there are signs the market is starting to slow. The BoE's latest report on consumer borrowing found that mortgage lending picked up again in February, rising to £10.3 billion from £9.5 billion in January, while the number of mortgage approvals for the month remained steady at 119,000. Last week the Nationwide mortgage lender said that house price inflation was starting to slow, with average prices in March up 9.3% on the year vs. 10.2% in February.

However today the largest lender, HBOS Plc, released its Halifax house price survey, showing the annual three-month rate of price increases rising to a two-year high of 11.1%. The market may be on the verge of easing, but there's still plenty of near-term life left.

Unsecured consumer credit data are unequivocal, though. Last week's BoE survey reported a lessthan- expected rise in credit, up just £919 million in the month, the smallest increase since September, and down from £1.02 billion in January and £1.5 billion a year earlier. Those rate hikes are starting to curb consumer borrowing.

And the rest of the economy? Again, the data are somewhat mixed. The CIPS/RBS service sector index, released yesterday, will be a source of ammunition to MPC hawks. The PMI nudged upward to a reading of 57.6 in March from 57.4 in February and the measure of prices charged by companies also picked up, coming in at 55.3 - up from 54.2 in February, and the highest reading since last August. The survey also noted "anecdotal evidence" that the latest round of inflation was leading to increased wage bills. On the other hand, the survey noted that employment growth eased to its lowest since August and outstanding business declined for the first time since November 2005.

Just before the MPC announcement this morning came the news that factory output fell for the second month running in February and at its sharpest rate in nearly two-and-a-half years, raising doubts about the traction of manufacturing's recent recovery. Manufacturing output fell 0.6% on the month and rose 1.2% on the year, while overall industrial production was down 0.2% from January and up just 0.3% on the year.

Earlier this week came the news that the CIPS/RBS manufacturing PMI slipped from 55.4 in February to 54.4 in March. However, the survey's new orders index, while down from the twoand- a-half year reading of 57.6 in February, remained at a relatively high level of 57.1. And, export orders rose at their fastest pace since January 2004, with the index edging up to 55.8 (55.7 in February), boosted in particular by demand from the Euro-zone. All of this suggests that the output report for March may look a little more sanguine.

All told, it is likely that the MPC remains divided over the direction of policy. Just how divided will become clear when the minutes of today's meeting are published on April 18. For now, we continue to favor a rate hike at the May 10 meeting, but much will depend on the conclusions of the BoE's May Inflation Report - not due for publication until May 16, but the MPC members will see a preliminary copy. Until then, key data to watch include March CPI on April 17; February average earnings and February-March labor market reports on April 18; and March retail sales on April 20.

By Victoria Marklew
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Victoria Marklew is Vice President and International Economist at The Northern Trust Company, Chicago. She joined the Bank in 1991, and works in the Economic Research Department, where she assesses country lending and investment risk, focusing in particular on Asia. Ms. Marklew has a B.A. degree from the University of London, an M.Sc. from the London School of Economics, and a Ph.D. in Political Economy from the University of Pennsylvania. She is the author of Cash, Crisis, and Corporate Governance: The Role of National Financial Systems in Industrial Restructuring (University of Michigan Press, 1995).

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

© 2005-2015 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History