FXStreet (Delhi) – Ross Walker, Senior UK Economist at RBS, expects December’s BoE’s MPC meeting to be a non-event.
Key Quotes
“The unchanged vote in November – and the accompanying somewhat hazier policy signal – lessens the chances of any developments in December.”
“In what is a fairly light data calendar, the main interest will centre on the first official industrial and construction output data for a Q4 month. The surveys have been volatile as have recent data points and mean reversion guides our forecasts for a fall in industrial production and a rebound in construction. It is early days, but these outturns would be consistent with the economy broadly matching the 0.5% q/q pace of expansion in Q3.”
“The BoE’s November Inflation Report conveyed little sense of urgency around the monetary policy outlook. A rate hike by the US Fed could conceivably embolden the BoE hawks and give the Bank some intellectual cover, but the Fed meets a week after the Bank so we doubt these considerations will be material at this stage.”
“The first official output data for October will be the main focus in the coming week. We expect industrial production to fall in October (a mean reversion after the 0.8% surge in manufacturing in September) and for construction output to rebound 1.5% m/m (following three successive monthly declines totalling almost 5%).”
“These two sectors account for one-fifth of GDP so outturns here will not be decisive in terms of GDP growth but they will provide an early indication. Outturns in line with our forecast would be consistent with Q4 GDP growth maintaining the 0.5% pace seen in Q3 – this would also be in line with the MPC’s expectations for the preliminary Q4 estimate.”
“Our forecasts are for sub-trend GDP growth in 2015 (2.3%, 2.1% ex-oil & gas) and 2016 (2.0%). Real household disposable income growth is forecast to slow from 3.6% in 2015 to 2.4% in 2016, reflecting a fiscal hit and higher inflation – so the consumer sector will not be the driver of growth next year that it was in 2015.”
“The resumption of fiscal tightening will constrain any contribution from the public sector. Brexit risk is likely to weigh on capex and hiring while faltering global demand means an UK export-led recovery is likely to remain elusive. Consequently, there is little immediate pressure on the BoE to raise rates and we continue to expect the first move in August 2016.”
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