View from the trading floor
The performance of equity markets has been notable in recent weeks for being able to look past all the concerns about a possible global trade war, in addition to those about a military flare-up in the Middle East. In the UK we have seen the main FTSE benchmarks close higher for three weeks in succession, despite all manner of stories about the woes in construction and the retail sector.
Given these concerns it seems strange that the markets still believe the Bank of England could look to raise interest rates by 25 basis points when its Monetary Policy Committee meets next month. In recent commentary Bank officials have expressed concerns about levels of inflation becoming entrenched. Recent upward moves in commodity prices will only serve to reinforce those worries, with oil its highest level last week since December 2014.
It is against this backdrop, with the
We could see a rise next month of 25 basis points
US Federal Reserve seemingly determined to press on with its own rate-hike cycle, that other global central banks are operating. This means that, barring disastrous numbers from the UK economy this week, we could see a rise next month of 25 basis points in the base rate to 0.75pc from the Bank of England.
There are already concerns among central bank officials about high levels of consumer debt, so nudging up rates would have the effect of making consumers think more carefully before increasing their debt levels even further.
Furthermore, there is an expectation that this week's wages numbers could see average earnings move above the headline consumer prices index (CPI) number for the first time since the beginning of last year. Market expectations are for headline CPI for March to stay steady at 2.7pc, while wages excluding bonuses will rise from 2.6pc to 2.8pc for the three months to February. The broader number is expected to rise to 2.9pc.
This will be small comfort to those of us who experience far larger price rises on goods and services in our daily lives, yet the symbolism of wage growth moving above inflation should not be underestimated in the context of what happens to the UK economy over the rest of the year.
Despite a poor 01 last year, the UK economy went on to grow at a faster rate in subsequent quarters — and given recent similarly poor data at the beginning of this year, the hope will be that we will see a similar story play out in 2018 as well.