Bank of England Meet This Week.

The Bank of England’s Monetary Policy Committee will be meeting on Thursday to discuss interest rates, with the MPC expected to vote on another 25bps rate hike. This is following four consecutive rate hikes and three committee members voting for a 50bps rate hike in May. The Bank of England are expected to raise rates to 2.5% by the end of 2022.

Data today is largely from the UK with GDP data for April as well as industrial and manufacturing data all expected to come out better than the previous figure. The US diary included retail sales for May with a slight monthly increase being forecast. Meanwhile US industrial production is expected to continue its solid performance, with a 0.4% rise anticipated in May. In the Eurozone, the main release of note is industrial production data for April, which is expected to register a 0.5% month of month increase.

This week saw both the OECD and World Bank make dramatic cuts to their growth forecasts for the world economy in 2022, largely on the back on the fall-out from the war in Ukraine. The OECD is now projecting global growth of 3% for this year, down from its previous estimate of 4.5% made at the end of 2021. The world bank has cut its forecasts from 4.2% to 2.9%.

One soft spot affecting the economy in the opening quarter of the year was domestic spending, which was still being held back by COVID restrictions in place during the first month of the year, as well as ongoing disruptions to supply chains, most notably in the motor trade. Consumer spending fell by 0.7% in the first quarter which is consistent with the trend in retail sales data for the period. The available data for the second quarter point to ongoing strong growth in activity, with a large rise in retail sales in April, strong services and manufacturing PMI surveys for April and May, as well as a further decline in the unemployment rates.

This week, a key event will be the latest Fed meeting. Having raised rates by 50bps in May, another 50bps hike is expected, bringing the Fed Funds target range up to 1.25-1.5%. Meanwhile the latest interest rate projections will gather close attention, as investors look for guidance as to where the terminal rate may lie. Markets have around 200bps of rate hikes priced in between now and year end. This would see the Fed Funds target range rise to 2.75-3.00%.

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