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(CEP News) - Economists are expecting some further weakening in the UK's CPIS/Markit manufacturing PMI in September, to be released Wednesday, but the data may be largely ignored given the backdrop of sharp deterioration in the global financial markets, causing many to revise their calls for the Bank of England to hold rates next week.
"There are a series of important data communing in next few days," said Global Insight economist Howard Archer when asked what data the Bank of England would be paying attention to ahead of the monetary policy decision on Oct. 9. However with a renewed bout of financial turbulence in the global financial markets, even falling inflation in the country may not be enough to sway the Monetary Policy Committee from cutting rates, he added. The consensus expects a decline in the headline index to 45.0 from 45.9. Alan Clarke of BNP Paribas points out that the headline index has already fallen a lot when compared to U.S. and European equivalents. "Taking that into account, it can't fall much further or rather dramatically," he said. BNP Paribas expects a small decline to 45.1. On the positive side, Clarke cited the ongoing declines in the price of oil, which usually benefit the manufacturing sector. Indeed, WTI crude oil has fallen as much as 19% since the beginning of September and around 10% month-to-date. On the other hand, the European economy appears to be weakening rapidly. A deterioration in demand across the Channel, combined with weakening demand at home, is expected to weigh heavily on sentiment. Archer believes the prices charged component of the manufacturing PMI and services index coming out on Friday will be scrutinized for evidence that producers are passing on less of their costs to consumers, thus suggesting falling inflation. With CPI in the country reaching 4.7% in August, far above the BOE's 3.00% target ceiling, the timing of an imminent price decline has been widely assumed to be the signal for aggressive cuts from the central bank. The prices charged index soared to a record high of 64.5 in August, Archer said. A research note from Capital Economics is in complete agreement. "Even a further improvement in September, perhaps to 46.5, would not alter the message that the manufacturing sector is set for a painful recession." "More interesting, then, will be whether the prices charged balance shows any signs that the recent easing in cost pressures and weakening in demand conditions are starting to weigh on pricing power," the note adds. "We are hopeful that this balance will fall back from August's record high 64.5, suggesting that the official measure of output price inflation may build on the modest easing recorded in August." The services PMI is expected to decline to 48.0 from 49.2 in September. The Bank of England's Monetary Policy Committee meets next week and a decision is scheduled for Oct. 9. The consensus forecast remains for no change to the 5.00% rate; however, the number of economists joining the rate cut camp is increasing and the SONIA market is suggesting a 95% chance of a 25bp cut. By Erik Kevin Franco,
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