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Factbox - How is the UK economy doing versus Bank of England expectations?

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Factbox - How is the UK economy doing versus Bank of England expectations?

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By David Milliken LONDON (Reuters) – The Bank of England has said that the interest rate hike it is likely to make “in the coming months” depends on whether inflation pressures continue to build and the economy moves nearer to growing at full capacity. Below is a summary of what the BoE has said it is expecting to see in the British economy, how the economy has been performing and when the next key data releases are due.

INFLATION What the BoE said: the central bank, which has a target of 2 percent inflation, said on Sept. 14 that consumer price growth will reach slightly above 3 percent in October, taking it to its highest since March 2012. What has happened: In August the CPI rose to 2.9 percent in August from 2.6 percent in July. Many private-sector economists think it will hit 3 percent or slightly higher soon before easing back. The official inflation reading for September is due on Oct. 17, two weeks before the BoE’s next rates announcement on Nov. 2. WAGES What the BoE said: In August the BoE forecast that annual wage growth would be 2.0 percent in the fourth quarter of 2017, rising to 3.0 percent in the same period of 2018. What has happened: Wage growth during the three months to July was a bit stronger than the BoE expected at 2.1 percent year-on-year. The BoE said some of this strength was due to bonuses. Also, private-sector pay excluding bonuses measured over a shorter time frame was growing at an annualised rate of 3 percent, in line with the BoE’s expectations. A BoE survey has shown companies plan to offer pay deals in the 2-3 percent range, while a separate survey by the Chartered Institute of Personnel and Development gave a lower 2 percent average for the private sector. The official wage growth data for the three months to August are due to be published on Oct. 18. ECONOMIC GROWTH What the BoE said: Preliminary data is likely to show gross domestic product grew by 0.3 percent in the third quarter, the same slow quarterly growth as in the previous three months. But growth might be stronger due to improving consumer demand, it said. What has happened: Financial data company Markit said its July and August purchasing managers’ indices pointed to 0.3 percent growth. However, robust official retail sales figures in the three months to August have raised the prospect of a stronger performance. The preliminary official reading for GDP in the third quarter will be published on Oct. 25. UNEMPLOYMENT What the BoE said: the central bank forecast in August that unemployment would average 4.4 percent in the last three months of 2017 before rising slightly to 4.5 percent in 2018 and 2019, while labour force participation for over 16s would remain steady at 63.5 percent What has happened: Unemployment fell faster than forecast, dropping to 4.3 percent of the workforce in the three months to July from 4.4 percent in the second quarter. That is below the 4.5 percent level that the BoE has previously said could be a trigger for higher inflation. Labour force participation rose to 63.7 percent in June, its joint highest level since 2008. The next official unemployment data are due on Oct. 18. WHAT ARE FINANCIAL MARKETS SAYING? Shortly before the BoE’s Sept. 14 meeting, when it made its surprise announcement, investors were not pricing in an interest rate rise until late 2018. Economists polled by Reuters were even more sceptical – they had expected no rate rise until 2019. Sterling was at what was then a one-year high against the dollar <GBP=> of $1.3328 the day before the meeting, and was at around 90 pence against the euro <EURGBP=D3> having weakened in the previous days to an 11-month low of 93 pence. After the BoE announcement, financial markets brought forward their bets on when the rate hike would come and they are now pricing in a 65 percent chance of a hike at the Nov. 2 meeting. Most economists also see a hike then. Sterling hit its highest level against the U.S dollar since the 2016 Brexit vote, reaching $1.3659 on Sept. 20, and it has recovered to 87.75 pence against the euro. (Editing by William Schomberg/Jeremy Gaunt)
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