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Economics Weekly: Focus on BoE Inflation Report and US FOMC interest rate decision
Focus on BoE Inflation Report and US FOMC interest rate decision
â€¢ The Bank of England (BoE) will publish its latest estimates for gdp growth and inflation in the quarterly Inflation Report on Wednesday. The forecasts based on implied interest rates may offer some clues about the likely trajectory of official base rates in the months ahead. June industrial output data is due on Monday, the July BRC retail sales monitor is due on Tuesday and global trade figures will be published on Thursday.
â€¢ US official short term interest rates are forecast to stay on hold at 5.25% on Tuesday. The Fed last month revised down its projections for economic growth in 2007 and 2008; weaker than expected home sales in July and the jitters in credit markets could lead the Fed to make some changes to the FOMC statement. On the data front, markets will concentrate on data for Q2 productivity and labour costs on Tuesday and import prices on Friday
â€¢ The ECB last week effectivey pre-announced that interest rates in the euro zone are likely to rise to 4.25% in September, by using the phrase 'strong vigilance' which could appear in the monthly bulletin, which will be published on Thursday. The bulletin may also offer a glimpse on possible revisions to inflation and growth forecasts in September.
â€¢ Interest rates in Australia may rise to 6.50% on Wednesday as the Reserve Bank of Australia tries to keep inflation on target by offsetting looser fiscal policy with tighter monetary policy.
Canadian housing and employment data could have an impact on expectations of another rise in Canadian interest rates.
The BoE quarterly Inflation Report will take centre stage in the UK on Wednesday as markets look for fresh guidance on the Bank's projections for economic growth and inflation. The Report follows the MPC decision to keep interest rates on hold at 5.75% last week, and will provide an update on the Bank's latest forecasts for economic growth and inflation over the next two years, based on the path implied by various interest rates. Solid economic data from the manufacturing and services industries last week suggest economic growth is holding up above trend in the present quarter, but this has to be balanced by tentative signs that consumer spending growth has started to slow. Capacity constraints, the 15% increase in oil prices since the May Inflation Report and upside pressure on food prices mean that the Bank is likely to stick to its view that inflation risks continue to be weighted to the upside in the medium term. Indications from recent upbeat PMI surveys suggest manufacturing activity may have expanded for a 4th consecutive month in June as industry reaps the benefits from strong demand and new orders, despite a strong pound. The British Retail Consortium (BRC) will publish its retail sales monitor for July on Tuesday and will be scrutinised for the latest turnover figures on the high street. Global trade figures for June are due on Thursday and may show a small widening in the global trade deficit to Â£6.6bn in June from Â£6.3bn in May.
In the US, the Federal Reserve is forecast to leave interest rates unchanged at 5.25% on Tuesday, one year of steady monetary policy. The Fed last month revised down its forecast for 2007 and 2008 gdp growth by 0.25% and is unlikely to announce new changes in the FOMC statement. However, markets will be on alert for any comments about the jitters in credit markets and on disappointing home sales data for July which will probably lead the Fed to reiterate that output growth will stay moderate in coming quarters due to the adjustment in the housing sector. The Fed is likely to stick to the view that inflation remains the predominant policy concern.
In the euro zone, data could take second place to the ECB monthly bulletin on Thursday. The bulletin is likely to reaffirm last week's hawkish message from president Trichet that interest rates will rise to 4.25% in September, by pledging 'strong vigilance' to ensure mediumterm price stability. Interest rates are forecast to rise in Australia on Wednesday to 6.50%.
Kenneth Broux, Economist
Economic Research,10 Gresham Street,
Lloyds TSB Corporate
London EC2V 7AE,
0207 626 - 1500
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