Howard Archer
Howard Archer
believe couple cut door early economy fails improvement interest next opening rate signs sustained
We believe the door is opening for an interest rate cut early in 2006 if the economy fails to show sustained significant signs of improvement over the next couple of months.
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The consumer is the weak link in the European economic upturn story. We're past the worst, but it's hard to see a marked improvement in spending coming.
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The clear improvement in economic sentiment in December boosts hopes that domestic demand will increasingly kick in over the coming months to support growth.
admit cut evidence further guarantees improvement interest looking marked rate rates sector whether
The evidence of marked improvement in the manufacturing sector further guarantees there will be no interest rate cut this Thursday. Indeed, we admit it is looking increasingly questionable whether interest rates will be trimmed further.
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The latest data - including the improvement in manufacturing activity and current strength of the housing market - has increased the odds that the eventual next move in interest rates will be up.
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The sector may see modest expansion in the first quarter of 2006, having been a major drag on overall growth in the fourth quarter.
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The strength of the public finances in January effectively guarantees that Brown will be able to avoid making any major tax hikes or significant spending cutbacks in March's budget.
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The slowdown in euro zone growth will not deter the ECB from raising interest rates in March and a further hike remains very likely in June.
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Euro region labor markets are finally beginning to see genuine, if somewhat limited, improvement, boosted by the pickup in growth since mid-2005. Rising employment is key to boosting consumer spending across the euro region.
export february flat orders
Flat export orders in February are particularly disappointing.
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Pretty healthy retail sales growth in November reinforces belief that consumer spending is picking up to some extent, and reduces the case for a near-term interest rate cut.
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Below the headline data there are some positive features that should not be overlooked.
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The testimonies to the Treasury Select Committee reinforce the impression that interest rates are set to remain on hold for several months to come.
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This significantly reduces the prospects of any interest cut until at least August. Indeed, it increases the odds that the eventual next move in interest rates could be up.