GBP News

The Confederation of British Industry on Monday upgraded U.K. economic outlook as the recovery continues to take hold and brought forward the estimated date of interest rate hike to the first quarter of 2015. The business lobby forecast 3 percent economic growth this year, up from the prior estimate of 2.6 percent. Likewise, growth for 2015 was lifted to 2.7 percent from 2.5 percent.

More...

Mark Carney signaled Bank of England officials are prepared to wait until next year to raise interest rates as he acknowledged that the British economy is moving closer to the point of needing tighter policy.

“The exact timing will inevitably be the subject of considerable speculation and interest,” the BOE governor told reporters in London as he presented quarterly economic forecasts. “The ultimate answer will depend on the evolution of the economy, particularly the degree of slack, the prospects for its absorption, and the broader inflation outlook.”

Based on investor expectations that the first tightening won’t happen until the second quarter of 2015, the central bank sees inflation staying close to its 2 percent target over the next three years. It forecasts price growth of 1.8 percent this year and next and 1.9 percent in 2016. The economy will grow 3.4 percent this year and 2.9 percent in 2015, the BOE forecast.

With the key interest rate at a record-low 0.5 percent, Carney is battling rate-increase expectations as Britain’s recovery gathers pace. While the comments today show he wants to continue his push for loose policy, the report also indicates signs of division within the nine-member Monetary Policy Committee.

Policy makers in their Inflation Report said that while the level of spare capacity in the economy had “narrowed slightly” in the past three months, there “remains scope to make greater inroads into slack before raising bank rate.”

The Inflation Report said that “most MPC members’ central view” is that the amount of spare capacity in the economy is in the region of 1 percent to 1.5 percent. “There is, however, a range of opinions within the committee and considerable uncertainty around the margin of slack,” it said.

Pound Drop

The pound fell after the release of the Inflation Report, and data showing slower-than-forecast wage growth. It was down 0.1 percent at $1.6808 as of 11 a.m. in London.

Money-market investors pared bets for a 25 basis-point increase after the report, seeing no increase until after April next year, according to forward rates on the sterling overnight interbank average, or Sonia, compiled by Tullett Prebon Plc. That compares with bets for the first increase in March before the report was released.

Based on the central view, the MPC sees the margin of spare capacity broadly closed only at the end of its forecast period in three years. That measure has become a key focus for the panel after unemployment fell faster than it had forecast, voiding Carney’s forward guidance. Data today showed unemployment declined to 6.8 percent in the first quarter.
Jobless Rate

The central bank predicts the jobless rate will continue to decline and fall to 6.1 percent in a year and to 5.9 percent in the second quarter of 2016. The BOE also said the medium-term equilibrium unemployment rate will also drop, to about 5.25-5.75 percent in three years. It estimates the current equilibrium rate at 6-6.5 percent.

“The recent strong performance of the U.K. economy has continued,” the BOE said. “The expansion now appears more broadly based than previously estimated.”

Economic growth accelerated to 0.8 percent in the first three months of the year, and the BOE expects expansion this quarter of 0.9 percent. It said a gradual strengthening of productivity and real incomes “together with growing confidence of companies to invest, should underpin the durability of the expansion.”

“The economy remains on course to meet the MPC’s intention of absorbing spare capacity over the next few years, while keeping inflation close to the target,” the central bank said.

The BOE also said today that inflation may slow more in the near-term than previously projected because the strength of the pound is “likely to bear down” on price growth. Sterling has increased about 10 percent against the dollar in the past year. The BOE sees inflation averaging 1.7 percent in a year before beginning to accelerate toward the 2 percent goal.

Source : bloomberg.com

Bank Of England Retains Rate Hike Timing Despite Economic Recovery
5/14/2014 8:43 AM ET

The Bank of England on Wednesday settled market speculations over an early interest rate hike, saying it was necessary to absorb the slack in the economy before tightening policy rates.

Although the margin of spare capacity has narrowed marginally since February, policymakers see more scope to make greater inroads into slack before raising the interest rate, the bank said in its May Inflation Report.

The amount of spare capacity in the economy remains around 1 percent to 1.5 percent of GDP. Regarding the assessment on spare capacity, the bank said the path of slack is uncertain, and there is a range of views on the Monetary Policy Committee.

"For a given growth profile, it will depend heavily on the timing and strength of the rebound in productivity growth," the bank said.

"As time has moved on and the recovery has been sustained, the economy has edged closer to the point at which Bank Rate will need gradually to rise," Governor Mark Carney said at the press conference.

The exact timing will inevitably be the subject of considerable speculation and interest, he said.

When the MPC does start to raise the key rate, it expects to do so only gradually and to a level materially below its pre-crisis average, the bank reiterated today.

Markets started to expect a rate hike this year itself as the unemployment rate declined at a faster-than-expected pace and the economic recovery maintained strong momentum.

Interest rates will remain on hold until the second half of next year, later than the markets and most economists expect, said Samuel Tombs, a U.K. economist at Capital Economics.

Earlier in August 2013, the bank pledged not to hike interest rate until the jobless rate hit 7 percent. When unemployment started falling sharply, it widened the scope of forward guidance and assured to maintain status quo until the second quarter of 2015.

IHS Global Insight's Chief UK Economist Howard Archer said the Inflation Report and Carney's remarks provide serious support to the view that interest rates are still most likely to start edging up around next spring.

Archer suspects that a majority of MPC members will be willing to err on the side of caution in raising interest rates so as to give the economy every chance to develop more balanced, sustainable growth.

The bank today maintained its economic growth outlook for this year at 3.4 percent and estimates 2.9 percent economic growth next year. Inflation is expected to remain below the 2 percent target in two years.

But it expects unemployment to fall faster than it estimated in February. The jobless rate is forecast to decline to 5.9 percent in two years, down from the prior projection of 6.4 percent.

Data from the Office for National Statistics today showed that the unemployment rate fell to a five-year low of 6.8 percent in the first quarter of 2013.

David Kern, chief economist at the British Chambers of Commerce said BoE Chief and the MPC have done their best to dampen the growing clamour for immediate interest rate rises in the face of difficult circumstances.

"The current situation, where any good news increases speculation over an early interest rate hike, is hampering businesses' ability to plan future investment," he added.

More...

Bank of England Governor Mark Carney said the housing market has "deep deep" problems and it represents the biggest risk to the economy. In an interview with Sky News, Carney said insufficient number of houses is the issue around the housing market. "We're not going to build a single house at the Bank of England," he said. "We can't influence that."

More...

U.K. consumers were the driving force behind Britain’s economic growth at the start of the year, continuing a trend after they led the recovery in 2013.

Consumer spending rose 0.8 percent in the first quarter, a 10th straight increase, adding 0.5 percentage point to gross domestic product. The economy grew 0.8 percent in the period, unrevised from an initial estimate, the Office for National Statistics said.

Britain’s recovery over the past year has left GDP just 0.6 percent below where it was at its peak in the first quarter of 2008. The improving economy was underscored by data yesterday showing a faster than forecast increase in retail sales in April.

The brighter outlook is also having an impact within the Bank of England, where some policy makers are moving closer to calling for an interest-rate increase. Minutes of the Monetary Policy Committee’s most recent meeting, published yesterday, showed the argument for higher rates is becoming “more balanced” for some of the panel.

While the outlook is improving and data indicates a squeeze on consumers is easing, Prime Minister David Cameron’s Conservative Party trails the opposition Labour party in polls. The Tories are expected to come third behind Labour and UKIP in European elections being held today.

Exports fell 1 percent in the quarter and imports dropped 1.1 percent, leaving net trade to have zero impact on GDP, today’s report showed. Government spending rose 0.1 percent and business investment increased 2.7 percent. Gross fixed capital formation added 0.3 percentage point to GDP.

First-quarter production growth was revised down to 0.7 percent from 0.8 percent in the initial GDP release. Growth in services, the largest part of the economy, was unchanged at 0.9 percent, and construction growth was raised to 0.6 percent from 0.3 percent. From a year earlier, the economy grew 3.1 percent, the ONS said, unrevised from the initial estimate. That’s the biggest annual increase since the fourth quarter of 2007.

Source : bloomberg.com

British manufactures expect output to increase strongly in the coming quarter despite reporting a flat order growth in May, survey results from the Confederation of British Industry showed Thursday.

More...

The Bank of England decided to keep its record-low interest rate intact to reinforce the economic recovery despite seeing signs of overheating in the property market. The Monetary Policy Committee governed by Mark Carney on Thursday voted to leave the key bank rate unchanged at 0.50 percent and quantitative easing at GBP 375 billion.

More...

The U.K. unemployment decreased to the lowest level in more than five years as companies raised their headcount as economic recovery gained momentum. The ILO unemployment rate eased to 6.6 percent in the three months to April from 7.2 percent during the November to January period, the Office for National Statistics said Wednesday.

More...

Low investment in both physical and intangible capital weighed on the U.K. productivity, the Bank of England said in its Quarterly Bulletin on Monday.

More...

The U.K. budget deficit widened more-than-expected in May as income receipts remained weak, signaling that robust economic recovery failed to support public finance. Excluding the temporary effects of financial interventions, public sector net borrowing increased to GBP 13.3 billion from GBP 12.6 billion last year, the Office for National Statistics said Friday.

More...