The Bank of England Is widely expected to raise Bank rate by a quarter point on Thursday, although figures in the week will suggest that economic conditions are mixed.
Although purchasing managers’ surveys are likely to show strong growth in manufacturing output, they should also show that growth in services is steady at around the rate it has been all year and that construction output is falling.
The latter is consistent with the possibility that uncertainty about Brexit is restraining investment in longer-lived assets. Bank of England data on Monday could be consistent with this. These could show ongoing weakness in bank lending to companies; lending to SMEs might be up by only 1 per cent year on year. The numbers could also show that consumer credit growth is slowing, in part because lenders are tightening their standards.
In light of all this, Bank governor Mark Carney is likely to present the rise as the withdrawal of last year’s insurance cut, and stress that future rises will be small and slow.
By contrast, the Federal Reserve is expected to leave rates unchanged on Wednesday, even though figures in the week could show the economy doing very well.
On Wednesday, the ISM might report that manufacturing is growing at its fastest rate since 2011. And on Friday, official figures should show a big jump in non-farm payrolls, reversing last month’s hurricane-induced fall. We might even see a hint that low unemployment is finally igniting wage inflation: last month’s numbers showed annual wage growth at 2.9 per cent, its fastest rate since 2010. In light of all this, Tuesday’s figures shouldn’t be surprising: they should show that consumer confidence is close to a 17-year high.
Elsewhere, news should be mixed. In the eurozone, it should be good. Official figures could show that GDP grew by around 0.6 per cent in the third quarter, maintaining the second-quarter’s expansion rate, and final purchasing managers’ surveys should confirm that growth has remained strong since then.
In Asia, however, we might see signs of a cooling off. Official Japanese numbers could show a drop in industrial production in September, which would mean output in the quarter grew by only around 0.3 per cent – less than in the second quarter. And in China, purchasing managers might report that manufacturing growth has slowed to around a five-month low.
