Summary for the 3rd of May 2019


As the market expected, the Bank of England held the bank rate and the forward guidance unchanged at the interest rate decision meeting yesterday. This was due to the Brexit deal wasn’t settled, and the BoE wanted the forward guidance and the monetary policy to reflect the Brexit outcome and the UK’s relationship with Europe.

The BoE had been relying on a soft Brexit outcome, which should also be the most likely scenario, due to fact that the British Parliament had so far been rejecting a hard Brexit alternative. A soft Brexit would lead to the need for more rate hikes than the market anticipated, this would contrast with other central banks who had been on a dovish side lately.

The final manufacturing PMI data in the EU area was unchanged from the flash estimate. The PMI index was still below the value of 50, and indicated a contraction in the manufacturing sector.

The president of the Bundesbank, and one of the candidates to take over for Mario Draghi later this year, Jens Weidmann, had urged the ECB to continue with the unconventional monetary policy as long as the inflation allowed. He believed the weakness in the economy was only temporarily.

The US Nonfarm productivity showed a solid 3.6% growth, annualized for the first quarter. The quarterly numbers could be quite volatile, but still, the numbers showed a positive trend for the yearly growth. From the first quarter of 2018 to the first quarter of 2019, the productivity had grown by 2.4%, this was a 1.7% growth from the previous quarter, and the strongest growth since 2010. Increased productivity helps lift the economic growth. Productivity also reduces costs and cost-driven inflation even with higher hourly earnings. The unit labour costs were close to zero for the first quarter and indicated no need for a higher interest rate.

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