12/05/2017 - BoE Downgrades UK Growth Forecast 

GBP

The Bank of England’s Monetary Policy Committee voted yesterday to keep interest rates on hold at 0.25%. The Committee voted 7-1 to stay on hold, with only outgoing member Kristin Forbes voting for a rise to 0.5%. The Bank warned that rates may rise sooner than the market expects, saying "it might not take much positive economic data to persuade further MPC members to join Forbes and vote to hike rates, though it should be noted that she is due to leave the MPC at the end of June."

The Bank’s growth forecasts for 2017 were cut from 2% to 1.9%, and the inflation forecast for this year was raised to 2.7% from the February forecast of 2.4%.

Governor Mark Carney highlighted that the expected rise in inflation is ‘’entirely’’ due to the weaker Pound, and at this stage raising interest rates would not be a good way to counter the increase in the cost of living. He also stated that the forecasts are based on the assumption that "the adjustment to the United Kingdom's new relationship with the European Union is smooth". According to Mr Carney, this would mean that the UK would secure "an agreement about future trading arrangements and there will be a transition, or an implementation period, from the negotiation to that new agreement".

According to the Office for National Statistics’ figures released yesterday morning, industrial output shrank more than expected and the trade deficit widened in March, indicating Brexit is beginning to have an impact on the economy. Industrial output dropped by 0.5% in March, further than the 0.3% drop that was expected.

In the first quarter of 2017, the trade deficit widened by £5.7bn compared to the final quarter of 2016, from £4.8bn to £10.5bn.  The ONS said this was mainly due to a 3.3% rise in import values, particularly in imports of oil, chemicals, mechanical machinery and motor vehicles, and a 0.5% drop in export values during the quarter.

USD

New applications for U.S. jobless benefits fell unexpectedly last week, while producer prices rebounded strongly in April, indicating a tightening labour market and rising inflation that could further encourage the Federal Reserve to raise interest rates in June. The labour market’s momentum has left financial markets anticipating further monetary policy tightening from the Fed's June meeting. This week Boston Federal Reserve President Eric Rosengren again urged the Fed to raise three more times this year.

Key Announcements

All Day : G7 Meetings

13:30  - USD : CPI m/m, expected at 0.3% against a previous of -0.3%

13:30  - USD : Core CPI m/m, expected at 0.2% against a previous of -0.1%

13:30  - USD : Core Retail Sales m/m, expected at 0.5% against a previous of 0.0%

13:30  - USD : Retail Sales m/m, expected at 0.6% against a previous of -0.2%