Will the Bank of England raise interest rates next Thursday? Since last week’s news of poor economic growth in the first quarter economists have downgraded the chances of it doing so from very probable to only possible. Figures next week might show that a rise isn’t necessary.
Although the NIESR is likely to estimate on Thursday that real GDP rose in April after a weak March on account of the bad weather, it will say that growth in the last three months was only around 0.2 per cent. That’s less than last year, and implies that GDP per person isn't growing at all.
Official data will also point to a slowdown. The ONS is likely to say that manufacturing output grew by only around 0.3 per cent in the first quarter. That’s significantly less than growth in the second half of last year. Industrial production growth, however, should be stronger thanks to cold weather boosting utilities output and to a recovery in North Sea production after December’s shutdown of the Forties pipeline.
We’ll also see further signs of a weak housing market. Both the Halifax and RICS are likely to say that supply and demand are depressed and that prices have been flat recently – and falling in London and the south east. The Halifax is expected to say that while it expects house price inflation to pick up a little this year, the rise will be less than 1 per cent after CPI inflation.
What’s more, overseas economies are cooling. French and German official figures should show that industrial production recovered in March after falling in February, but both will show weak output in the first quarter – and probably a fall in France. German factory orders might also be lower than they were at the end of last year.
There might also be signs of a slowdown in China. Monetary data could show a continued slowdown in the growth of the narrow money stock. In the past, such slowdowns have pointed to weaker growth in output and hence in commodity prices.
From a longer-term perspective, a rate rise in the face of such weak data would be consistent with trend economic growth now being much weaker than it was before the crisis, because even weak growth brings forth a policy tightening. In this sense, although the crisis was a decade ago, its effects are still very much with us.
