Europe's Week Ahead: All Eyes On Bank of England

Markets await Bank of England's response to Brexit, in first interest rate announcement since referendum.
By James Skinner ,

The week ahead in Europe will see key economic releases from a number of the bloc's major economies, while investors will also look closely at major numbers which are due to be announced in both China and the United States.

The Bank of England will deliver its first interest rate announcement on Thursday, since the U.K. voted to leave the European Union. The Thomson Reuters consensus forecast is for the rate to remain unchanged at 0.5% however, some observers expect the bank to take drastic action.

Credit Suisse analysts in a note to clients on Friday morning said they expect the bank to cut the benchmark Bank Rate by 45 basis points to 0.05%. They also anticipate that the central bank's governor Mark Carney will restart the printing presses by announcing an additional round of quantitative easing, which will likely be in the region of £75 billion ($96 billion).

Credit Suisse said, "In our view the financial markets and preliminary cyclical data are sufficiently weak to justify easing in next week's meeting, rather than waiting for the August Inflation Report, where they will release their post Brexit forecasts."

Capital Economics, an independent consultancy in London, also expects the Bank of England to take action, although they suggest it will only cut the bank rate by 0.25% and that it won't restart QE until August.

In continental Europe, investors will look keenly for signs of a rise in German inflation when data for June is released on Tuesday.

The consensus is for German CPI to have risen again, with the index reading likely to rise to 0.3% on an annual basis, up from 0.1% in May. The month-on-month data for German CPI is projected to show price growth slowing to 0.1% in June, from 0.3% in May.

The trend is still negative in German consumer prices and given that the nation has the largest economy in Europe, any additional weakness in inflation here could make further action from the ECB almost a certainty in the coming weeks or months. 

Jennifer McKeown at Capital Economics noted on Thursday that minutes from the most recent ECB meeting, which took place on June 2, suggested that policy makers were already contemplating further action, even before the U.K. voted to leave the  EU.

She expects that German inflation will continue to rise "as the drag from the energy component eases", but notes that the subdued pace of wage growth will likely prevent a surge in headline inflation numbers. McKeown wrote that the ECB could cut rates and add to its QE program as soon as the July 21 meeting.

Also in Europe, eurozone final CPI due out on Friday and industrial production released in Wednesday will provide insight into consumer price pressures and manufacturing activity across the wider currency bloc during May. Italian industrial production numbers, due for release on Monday, will provide a view of manufacturing activity in one of Europe's weakest economies during the month of May.

Chinese inflation numbers, covering the month of June, will be released on Monday while second quarter GDP and Industrial Production numbers will be released on Friday.

European investors will watch these releases closely for information about changes to Chinese economic output in the second quarter, as well as for indications about the likely performance of the world's second largest economy during the final half of the year. Likewise with U.S. inflation data for the month of June, which is also due out next Friday.

Loading ...