The Bank on England is expected to follow the Fed and ECB and announce no change to interest rates this week. However, while Bank rate may have reached its floor at a historic low of 0.5%, there is more uncertainty about the next stage of the asset purchase facility (APF).
Although it is still too early to properly assess its impact, some fresh indications about its potential scale should be forthcoming on Thursday, particularly given that the current £125bn programme is due to be completed at the end of July and so before the next MPC meeting. We look for the remaining tranche of £25bn already agreed with the Treasury to be utilised, with the view that further additional amounts may be requested from HMT subject to review at forthcoming MPC meetings. The Reserve Bank of Australia is widely expected to leave interest rates on hold at 3% on Tuesday.
Data this week should continue to suggest that the pace of the decline is easing, though still not signalling recovery. The US ISM services index, published today, is forecast to have nudged higher for the third successive month in June to 45, from 44 in May.
Later this week, the US trade figures are expected to show the deficit remained relatively steady around $29bn in May, raising hopes that net trade could contribute to GDP in Q2. However, the continuing risk posed to the nascent recovery from a weak labour market may be underlined by a rise in initial jobless claims and a softer University of Michigan confidence index. In the UK, we forecast a second consecutive rise in industrial production, however the monthly series is notoriously volatile. The details in the second estimate of Q1 EU-16 GDP provide the main highlight in the euro zone. It is yet another big week for US Treasury auctions.
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