LONDON (AP) — A day after the Bank of England hinted that it could raise interest rates faster than many expected, a run of economic figures on Friday suggest the British economy did not end 2017 as strongly as previously thought.
Official figures showed a 1.3 percent monthly decline in industrial production in December and a 4.9 billion-pound ($6.9 billion) trade deficit for goods and services, its worst since September 2016. Though construction output was stronger than anticipated, expanding by 1.6 percent during the month, some economists say that the figures could lead to economic growth being revised down.
“Today’s data reinforces the message that the U.K. continues to underperform other developed market economies, growing at around half the rate of the U.S. and the eurozone,” said James Knightley, chief international economist at ING.
“As such, while the Bank of England is clearly hinting at the potential for a May rate hike, we remain cautious on the longer term path for rates, particularly given the Brexit-related uncertainty.”
Last month, the Office for National Statistics estimated that the economy grew 0.5 percent in the fourth quarter from the previous three-month period, a better-than-expected outturn that partly allowed the Bank of England on Thursday to talk up the chance of more rate increases.
Investors moved swiftly to price in a growing likelihood of a quarter-point interest rate hike in May to 0.75 percent, which would be the bank’s second increase in six months. With unemployment at multi-decade lows and the global economy growing strongly, policymakers at the central bank are concerned that inflation is building. The Bank of England is tasked with setting rates to keep inflation near 2 percent. In December, it stood at 3 percent.
Even if fourth-quarter growth is not downgraded when the next estimate is published later this month, the trade figures are likely to provide rate-setters on the Bank’s Monetary Policy Committee with pause for thought. Governor Mark Carney had said exporters were in a “sweet spot” at the moment — still in the European Union ahead of Brexit but also benefiting from the fall in the pound after Britain voted to leave the EU.
“The latest trade figures should temper the MPC’s optimism that the economy is rebalancing and enjoying a trade boost,” said Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics.