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May 31, 2006

UK Data Confirm BoE's Wait-And-See Stance
by Victoria Marklew

Today's bevy of data releases on consumption and demand confirm that interest rates are unlikely to shift anytime soon, and may even be on hold into 2007.

The Confederation of British Industry retail sales report showed sales volume picking up fast in May, and set to accelerate further next month thanks to the quadrennial World Cup. The monthly sales balance climbed to +9 from +2 in April, the highest level since December 2004.

However, the GfK consumer confidence index unexpectedly fell back from -4 in April to -5 in May as Britons reportedly became more pessimistic about their personal finances, and increasingly reluctant to make major purchases.

The Bank of England's April report on consumer credit showed that the number of mortgage approvals fell to 106,000, down from 114,000 in March and the lowest in seven months. This could be a sign that the recent up-tick in the market is already running out of steam. (Last week, the British Bankers' Association reported that the number of approvals for home purchases in April posted the first annual fall for nine months.) Consumer credit rose 7.3% on the year, down from 7.6% in March and the weakest rise since March 1994.

The latest house price survey from Nationwide (the second-largest mortgage lender) reported that prices rose just 0.2% on the month and 4.7% on the year in May, versus 0.1% and 4.8% in April. Nationwide concluded that cooling demand for housing as well as rising interest rate expectations in the financial markets, may dampen property price inflation in coming months.

Manufacturing PMI for May will be released tomorrow (June 1); next week brings April industrial and manufacturing production and the latest BoE rates decision (all on June 8); May inflation data is set for release June 13; May unemployment on June 14; and the minutes of the upcoming BoE meeting will be released June 21.

Victoria Marklew
The Northern Trust Company
Economic Research Department
"The economics of what is, rather than what you might like it to be."
50 South LaSalle Street, Chicago, Illinois 60675

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Copyright © 2005-2008 The Northern Trust Company

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