Howard Archer England Quotations

Robust service sector activity in February makes it even more of a cast-iron certainty that the Bank of England will keep interest rates unchanged next Thursday.

With consumer price inflation below the 2% target level in both December and January and clearly below the levels forecast by the Bank of England in their November quarterly inflation report, a near-term interest rate cut suddenly looks a very real possibility again.

While it is clearly premature to sound the all-clear on inflation, the October consumer prices data are largely reassuring for the Bank of England and boost hopes that inflation has peaked,

With one member of the MPC voting for an interest rate cut in December and Bank of England chief economist, Charlie Bean, recently making some dovish comments, the odds of an interest rate cut early in 2006 are rising.

This underpins our belief that the Bank of England is too optimistic on the growth outlook and will eventually end up trimming interest rates by a further 25 basis points.

This is a really stunning retreat in retail sales. It reinforces our belief that the Bank of England is too optimistic about consumer spending.

This is still a pretty healthy report overall that suggests that the service sector has started 2006 relatively strongly. The report does little to change perceptions that the Bank of England will keep interest rates unchanged next week, and very probably for some time to come after then.

This is still a pretty benign report overall and broadly in line with Bank of England expectations contained in the February Inflation Report.

This (CPI data) very much keeps the door open for an interest rate cut in February, although the Bank of England may still prefer to wait while it monitors the strength of consumer spending and wage settlement levels early in 2006.

The Bank of England will not be happy to see that manufacturers output prices rose at an increased rate in December, as it suggests that they could be stepping up their efforts to pass on their higher input costs despite intense domestic and international competition and relatively soft demand.

The Bank of England will be pleased to see that producer output prices remained largely contained in December, but less good news is the further sharp increase in input prices as gas prices soared.

The Bank of England currently seems unlikely to act before August given that growth in the first quarter appears to have been around trend, while survey evidence indicates that inflationary expectations have risen recently.

It seems a nailed-on certainty that the Bank of England will hold interest rates steady on Thursday,

For now at least, the Bank of England will be very wary that a trimming of interest rates could excessively stimulate the housing market and risk sending house prices markedly higher. It certainly further rules out a move today.

The earnings data may encourage the Bank of England to hold off from cutting interest rates in the immediate future as March while it seeks sustained clear evidence that the pay settlements for 2006 are remaining contained (the early signs are that wage moderation is continuing). However, we believe that interest rates are likely to be trimmed by a further 25 basis points by May.

The combination of rising unemployment, falling employment and muted earnings growth is hardly supportive for consumer spending. It reinforces our belief that overall growth will be softer than forecast by the Bank of England and that underlying inflationary pressures will remain muted.

The disappointing decline in manufacturing output is most unlikely to sway the Bank of England from leaving interest rates unchanged on Thursday.