July survey data point to a weaker start into the third quarter, with lower readings in main PMI surveys suggesting softer activity in services, but also in the industrial sector.
Though a positive is that house building activity expands more solidly, consumer confidence (according to GfK) fell to below its long-term average level. Overall, latest surveys point to a GDP growth rate of below 0.4% QoQ – lower than the official Bank of England forecast which foresees growth surpassing 0.4% over the next few quarters. In general, we believe that the latest Bank’s macro forecasts are on the optimistic side.
For instance, next year’s GDP growth was revised up to 1.8% (+0.1ppt), while the output gap is expected to be positive next year, rising to 0.5% in 2020, consistent with a drop in the unemployment rate to 3.9%. If this forecast horizon turns out to be correct, then the Bank would have to tighten monetary policy much faster than currently anticipated. We do not believe in such an optimistic macro scenario in the short term, and expect no further Bank rate hikes this year.
Gero Jung - Chief Economist - Mirabaud AM