Our call for an August Bank rate hike remains in play, and we do not expect any major announcements at this week’s Bank of England Monetary Policy Meeting, with the Bank acknowledging the weakness in first quarter data, while the gain in second quarter momentum remains modest.
After the very weak earlier data on industrial output, lower exports and the absence of momentum in construction, last week brought slightly brighter news coming from the domestic demand side, with retail sales rebounding in the second month in a row.
A positive is the fact that growth was recorded across all main sectors, with non-store retailing reporting strong growth in total volumes sold (+16%). However, as the ONS states, retailers report that May sales may have been influenced by favorable weather conditions and the Royal Wedding, suggesting that the solid monthly rise is of temporary nature only.
While retail sales data are volatile, other consumer data (e.g. GfK consumer confidence survey) point strongly towards an improvement in domestic spending, a positive for short term growth.
Gero Jung – Chief Economist – Mirabaud AM