Wednesday May 31, 2006 - 11:43:15 GMT
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INVESTICA Ltd - www.investica.co.uk
Steady UK growth
The UK data was not strong enough to push the Bank of England towards an immediate interest rate increase. The risk of Sterling selling against the Euro will be magnified by the tough ECB stance on inflation and monetary policy and Sterling is likely to hit selling pressure close to the 0.68 level.
The UK economic data had a mixed tone on Wednesday and suggested firm, but not accelerating growth.
The CBI retail survey reported a further improvement in sales expectations with a net balance of +9 for June compared with +2 in May and this was the strongest figure since late 2004. Consumer confidence, however, edged down to -5 from -4 the previous month while there was a drop in mortgage approvals for April. The Nationwide house price index recorded a slow 0.2% increase for May which kept the annual rate below the 5.0% level.
Overall, the Bank of England will need to remain vigilant over inflation risks, especially with high energy costs, but there appears little immediate need for the MPC to increase interest rates unless there is a clear acceleration in earnings growth.
In contrast, the ECB will increase interest rates next week and there will also be greater speculation over a further 0.25% increase in July or August, especially as Euro-zone consumer inflation rose to 2.5% in May from 2.4% the previous month.
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