Are UK interest rates about to rise? We’ll find out in Thursday’s statements from the Bank of England.
Although a rate rise then is unlikely, the Inflation Report might hint at rises next year – assuming that Brexit doesn’t immediately greatly damage the economy – simply in response to rising wage growth. What’s more, if next week’s Budget does loosen fiscal policy, the boost to aggregate demand and hence (in the Bank’s albeit questionable view) inflation might also lead to a higher Bank rate.
Other figures next week might show that the economy is stable enough (for now) to withstand higher rates. The CBI should report that retail sales are growing steadily; GfK is likely to say that consumer confidence is more or less stable; and purchasing managers should report steady growth in both manufacturing and construction.
One sector that might be vulnerable to rising rates, however, is the housing market. Next week’s figures could show that this is weak. The Bank is likely to report that mortgage approvals are flat, and the Nationwide will probably say that prices have risen less than 2 per cent in the last 12 months – implying a drop in real terms. Yes, higher wage growth – if it happens will support prices – but higher mortgage rates certainly won’t.
Elsewhere, we might see evidence that the trade war is hurting some economies. In China purchasing managers might report the first drop in manufacturing activity since April 2017. And while Japanese official figures should show a rise in industrial production last month, output will have fallen since the spring.
One economy that’s not yet suffering, though, is the US. The Conference Board is likely to say on Tuesday that consumer confidence is near an 18-year high. Friday’s figures will show a big reason for this; unemployment is at a 50-year low, and jobs are still growing strongly. Yes, the ISM survey might report a slight slowdown in manufacturing activity, but from a very rapid rate.
Such growth might, though, be igniting inflation. Friday’s figures could show average hourly earnings growing at almost 3 per cent year on year, the fastest rate since the 2008 crisis. Unless it is cowed by President Trump’s moaning, the Fed is likely to react to this by raising rates again in December.
Inflation isn’t rising everywhere, though. Eurozone data should show it is steady at around 2 per cent, and the core rate (which excludes food and energy) is flat at around 1.1 per cent, well below its target.
