UK Data Barrage: The Pressure is on the BOE
The pound has been gaining strength over the last month or so, thanks to several factors. But the most salient could be said to be the upcoming election. It’s widely considered that the BOE won’t make any major change in policy until the voting is done on July 4th, as part of the central bank’s intention to stay out of politics.
That means the next meeting on June 20th would likely be a punt, with the focus now falling on August and September. The market is betting on the latter for now, with around a 60% chance. Economists and brokers, on the other hand, are of a majority mind that the BOE will cut in August. That difference of opinion might be resolved with the key upcoming data points to be released this week.
Job Growth Still Exerting Pressure
The BOE acknowledges that interest rates at multi-decade highs are restrictive, meaning that they are hurting economic growth. But the MPC has been reluctant to bring them down even as inflation has been moderating, out of concern for strong inflation in the services sector. That is generally seen as a result of strong growth in wages, which has exceeded inflation for six months running now. So, signs of loosening in the jobs market could put the BOE at ease about diminishing pressure from rising wages.
The UK claimant count comes out on Tuesday and is expected to show 4.0K people were added to the rolls of those looking for unemployment benefits, down from the 8.9K added in the prior month. That is a relatively small difference, given the size of the UK labor force. Similarly, the unemployment rate is expected to be unchanged at 4.3%. Therefore, the focus is likely on the average earnings (with bonus), which is expected to continue its downward trajectory, growing at just 5.5% compared to 5.7% prior.
The Growing Economy
What could throw a spanner in the works is economic growth. Generally an expanding GDP is a good thing, but an overheated economy can cause inflation to rise as well. Fortunately for the BOE (but not so much for UK citizens), that doesn’t seem to be an imminent risk for Britain. The economy is forecast to grow at 1.0% this year, and step up to 1.9% last year. Hardly enough to really drive inflation.
What the markets are looking for is how much pressure the slow growth is putting on the BOE to ease. Stronger than expected growth would give the central bank more room to keep rates higher to guarantee that inflation is, in fact, coming down.
What the Data Says
Wednesday sees the release of monthly GDP figures for April, which is expected to come in at 0.2%, down from 0.4% prior. Though that’s not necessarily an important slowdown, because March’s figures were seen as extraordinarily strong. The annual growth rate is expected to tick up to 0.7% from 0.6% prior, suggesting that the UK economy is still expected to expand faster later in the year. But that faster growth could come thanks to easing interest rates as well.