Manufacturing output falls
While the consumer has been the mainstay of the U.K. economy over the past year or so, manufacturing has been steady not causing many major alarms yet not growing particularly strongly either. This had been a picture repeated in both the Eurozone and U.S. but yesterday that picture changed somewhat.
While it is never wise to attach too much attention to a single month’s data (ask Mark Carney) the fall in yesterday’s release of ISM manufacturing figures will concern the MPC.
Manufacturing fell from 56.3 in May to 54.3 in June. The May number was also revised slightly lower. A read above 50 still means that manufacturing is expanding but the rate has slowed considerably.
The same data in the Eurozone showed that manufacturing remains fairly constant reaching 57.4 following 57.3 in May.
There was a major turnaround in the U.S., however, as output rose to 57.8 from 55.2, the largest single month increase in three years.
The dollar index reacted positively rising above 96.00 but facing strong resistance. The pound and Euro corrected but still appear well supported at slightly lower levels.
MPC Dove counters rate hike argument
Renowned MPC dove, Gertjan Vlieghe, a well-known dovish voice on the BoE MPC spoke out yesterday over the calls for a tightening of monetary policy and higher interest rates in the U.K.
Vlieghe has been a lone dovish voice, calling for a rate cut in the wake of the Brexit referendum a month before his colleagues caught up.
Yesterday, in an interview, he said that the risk of a hike too soon outweighs the risk of one proven to be a little late. He said, “This is an environment where a premature hike would be a bigger mistake than one that turns out to be slightly late”. Given the recent comments from his colleagues that that ship, if it hasn’t already, is very close to setting sail, his may be a voice in the wilderness.
The pound, already suffering following weak data took this as a sign that a rate hike isn’t as cut and dried as had been assumed after recent comments from other MPC members. A balanced discussion can now be expected when the MPC next meets on August 3rd.
RBA on hold for longer than expected
Citing fears over the housing market and any change to policy which could strengthen the AUD, the Reserve Bank of Australia not only held rates unchanged overnight but produced a more dovish than expected statement.
While the market didn’t expect a rate hike at this meeting to defer any hike until sometime in the future. It wasn’t all an anti-climax; the statement was fairly upbeat on business condition which have been improving gradually and a marked improvement in capacity utilization.
The AUD fell following the announcement and given the probable divergence in policy, a further fall is possible.
Pay Cap row intensifies
Just as Theresa May was getting her bikini out and booking a leg wax ahead of her summer holidays another row has flared up that threatens to derail her.
The opportunistic but tactically brilliant attempt from the opposition to force an abandonment of the fiercely unpopular 1% cap on public sector pay increases has created ripples throughout the Government. Two senior ministers and a host of less significant but equally vociferous members have voiced an opinion that the time has come to loosen the purse strings.
Mrs May is, so far, against any change in policy and this could be the start of the campaign to oust her.