Well, we’ve already seen the ECB cut rates last week by twenty five basis points, and this week the Bank of England were given some important data to digest ahead of their next interest rate decision meeting on the 20th of June. The Initial GDP reading for the UK came in flat for the month of April, following a 0.4% growth in March, with construction output declining by 1.4% and service sector growth of just 0.2% owing to wet weather deterring shoppers from the high streets.
On Tuesday, the latest UK unemployment data also revealed that citizens without a job were at the highest level they have been in 2 and a half years. The report from the Office for National Statistics showed that in the three months to April, unemployment rose to 4.4%, up from 4.3% in the quarter before. There was a further increase in the inactivity rate to the highest level in nearly a decade, with more than a fifth of working-age people not actively seeking employment.
Despite a small uptick in unemployment, wage growth remained steady. Annual growth in wages minus bonuses was unchanged at 6% over the three months February to April and was 5.9% taking into account bonuses. Despite the potential loosening we’re seeing in the job market and the flattening of GDP growth, wage growth continuing to outpace inflation will likely temper the chance of a June rate cut as policymakers will consider the continued spending power consumers have when they are close to their 2% inflation target. The market is now pricing in the first rate cut in August or September.
Latest figures on Chinese inflation showed that consumer inflation remained unchanged in May at a growth of 0.3%, meanwhile producer price declines softened, falling at a lesser pace of 1.4% last month compared to 2.5% in April. A breakdown of the figures indicate that PPI has eased in response to rising commodity prices, suggesting that China is perhaps still in a reflation period but with more room for stimulus to shore up demand.
Over in Japan, a draft of government policy on Tuesday stated policymakers will draw upon all the tools available to drive wage growth that will finally combat deflation. In the plan, the government stated they will work to achieve their goal of a primary budget surplus by 2025 and reduce the outstanding state debt.
Still to come this week we have the US’ inflation rate and the Federal Reserve’s interest rate decision due out later today. Markets are expecting rates to remain unchanged in the range of 5.25-5.5%. We are also expecting US PPI and the Bank of Japan’s interest rate decision and Chinese retail sales.
Nicola Tune, Portfolio Specialist
