The Bank of England continues to respond to the threat of weaker activity in the global economy. However, our read of recent economic data does not suggest that excessive concern about the outlook is warranted.
Domestic demand continues to surprise on the upside.
The tightness in the labour market appears to be putting some upward pressure on earnings. Not all the data has been positive. Manufacturing surveys suggest the weakness has continued into Q2 with the PMI falling deeper into recession territory with an April reading of 47.8 compared to March s 49.8. Though weakness in the industrial sector could prompt another rate cut, given the recent strong spending and earnings data, and the close proximity of the June 6 meeting to the June 7 election, we expect the BoE to leave rates on hold next month. By July, if signs of recovery in the international economy are emerging we expect the BoE to remain on the sidelines.