Wednesday 20 November 2019

Rate hike less likely as UK economy struggles to grow

Bank of England governor Mark Carney meeting German Chancellor Angela Merkel in his capacity as the president of the G20’s Financial Stability Board at the G20 summit in Hamburg yesterday. Photo: Getty
Bank of England governor Mark Carney meeting German Chancellor Angela Merkel in his capacity as the president of the G20’s Financial Stability Board at the G20 summit in Hamburg yesterday. Photo: Getty

Andy Bruce and  Jonathan Cable

Britain's economy struggled to gain momentum after a slow start to 2017, according to data published yesterday which raised questions about the chances of the Bank of England raising interest rates this year.

Britain's economy struggled to gain momentum after a slow start to 2017, according to data published yesterday which raised questions about the chances of the Bank of England raising interest rates this year.

Output by British factories and the construction sector unexpectedly shrank in May, on top of weak spending by consumers who are feeling the pinch from accelerating inflation since last year's vote to exit the European Union.

The signs of continued weak growth came as businesses pressed British Prime Minister Theresa May and her government to negotiate a smooth Brexit in two years' time, saying an abrupt departure would deter investment.

An employers group said on Thursday that Britain should stay in the EU's single market for a transition period.

Executives from leading British companies met Brexit minister David Davis this week.

Sterling dipped below $1.29 after Friday's data and hit its lowest level since June 28. British government bond prices rose.

Analysts said the economy was now unlikely to recover much speed in the second quarter, after expanding by just 0.2pc in the first three months of the year.

"It's all building up a pattern here that says the economy is clearly losing momentum," said Peter Dixon, economist at Commerzbank.

"It's not pointing to a particularly dynamic second quarter. Under those circumstances, the timing of the hawks on the Monetary Policy Committee pushing for a rate hike doesn't look great." Growth in the second quarter was likely to edge up only slightly to 0.3pc, the National Institute for Economic and Social Research, a leading think tank, said.

The Office for National Statistics said manufacturing output edged down by a monthly 0.2pc, confounding forecasts for a 0.5 percent rise in a Reuters poll of economists.

Construction figures were also much worse than expected with output in the three months to May down 1.2pc, the sharpest such drop since October 2015.

The strength of next Wednesday's official data on wages is now likely to be critical for BoE policymakers -headed by BoE governor Mark Carney -as they mull whether to raise interest rates from their record low 0.25pc.

Financial markets suggested there was a roughly one in three chance of a rate hike this year, down from one in two a week ago.

Rate-setter Michael Saunders said this week he was "reasonably confident" improving exports and investment would more or less compensate for the consumer slowdown.

Separately on Friday, mortgage lender Halifax said house prices rose at the slowest annual pace in four years, which could erode consumer confidence.

Trade data for May also looked weak.

Irish Independent

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