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UK Data 

• Monday 9.30am PPI Input for June previous 1.1%y/y
• Monday 9.30am PPI Output for June previous 2.5%y/y
• Tuesday 12.01am BRC Retail Sales Monitor previous 4.0%y/y
• Tuesday 9.30am Trade Balance for May previous -£6.3bn
• Thursday 12.01am RICS Housing Survey for June previous 23.9 3m%bal

As widely expected, the Bank of England raised interest rates by 25bps at last week’s meeting taking UK base rates to 5.75%. The accompanying comments were also on the hawkish side stating that whilst CPI is still expected to return to its 2% target rate by year end, near term risks remain to the upside. This adds further weight to the argument that the MPC will raise rates again in the months ahead. Further confirmation that the UK economy remains robust was seen from industrial (+0.6%m/m) and manufacturing (+0.4%m/m) production and services PMI (59.6) all of which exceeded expectations. This week, attention turns to PPI for signs that inflationary pressures will result in further monetary tightening.

US Data

• Thursday 1.30pm Trade Balance for May previous -$58.5
• Friday 1.30pm Import Prices for June previous 0.9%m/m
• Friday 1.30pm Retail Sales for June previous 1.4%m/m
• Friday 3.00pm University of Michigan Sentiment Survey for July previous 85.3

The main highlight last week was the US employment report which showed a strong 132k new jobs created outside the agricultural sector. There was also an upward revision for May to 190k from 157k previously. The unemployment rate remained steady at 4.5% in line with expectations. There was further confirmation of a steady US economy from the ISM manufacturing (56.0) and non-manufacturing (60.7) survey both of which beat the consensus forecast. This week, the main highlight will be the trade balance on Thursday where the market will be looking to see whether or not the weaker Dollar is having a positive impact on US exporters.

Euro Data     

• Thursday 10.00am EU GDP for Q1 previous 3.0%y/y
• Thursday 10.00am EU Industrial Production for May previous -0.8%m/m

Last week saw the ECB leave interest rates unchanged at 4.00% however, the key was in the accompanying statement where Trichet was significantly more hawkish than expected. Consequently, the market is now pricing in a high probability of a rate hike in September if not, certainly in October. Otherwise, manufacturing PMI (55.6) PPI (2.4%y/y) unemployment (7.0%) and services PMI (58.3) all came out broadly in-line with expectations. This week, attention turns to industrial production and GDP for an indication on the heath of the European economy.

Interest rate outlook