Broad trend suggests a strengthening of UK economy and a rate hike in a few months - ING

By FXstreet.com | August 07, 2014 AAA

FXStreet (Łódź) - James Knightley from ING believes that despite some recent weak UK data releases the general condition of the country's economy is improving, which could prompt the BoE to hike rates in a few months' time.

Key quotes

"Official industrial production data disappointed yet again yesterday, rising just 0.3% MoM versus the 0.6% consensus expectation."

"This, once more, highlights the disconnect between what official data is telling us – pretty mediocre manufacturing activity – and what private surveys show, such as the CBI industrial trends survey – that the manufacturing sector is performing well."

"Official data elsewhere is encouraging with GDP growth having risen 0.8% for the second quarter in a row, employment continues to surge, retail trade is looking up and confidence in general remains at very high levels."

"That said, the BoE believe that there is significant labour market slack in the economy with wage pressures looking non-existent right now."

"Furthermore, there has been a touch of softness in some sentiment indicators that suggests a nervousness about the prospects of rate hikes, while sterling’s strength may also be starting to cause some concern for corporates."

"As such, today’s interest rate decision is likely to see policy left unchanged, but we suspect at least one committee member will vote in favour of a 25bp hike. New economic forecasts will be released with an updated assessment of the amount of 'slack' in the UK economy."

"Martin Weale is the favourite given he voted for such action in the January-July 2011 period and the fact that in June he warned unemployment could fall faster than the MPC expects, which 'points to a need for a policy profile tighter than in our May forecasts'."

"Given the high degree of churn within the committee recently we wouldn’t be surprised to see someone else join him."

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