UK Data, Euro Area 2Q GDP to Grab Attention

(MENAFN– ecpulse) This week, the focus will be on fundamentals from both United Kingdom and euro area as they release important data that is likely to determine the strength of recovery.

Starting with the U.K., eyes will follow the release of inflation, unemployment and retail sales reports in addition to BOE minutes of August’s rate decision.

The most recent data from the U.K. has suggested that recovery is gathering momentum with some inflationary pressures, which propped policymakers to leave both interest rate and stimulus on hold this month.

CPI for the year ended July may show that inflation had ease to 2.8% from the prior of 2.9%.

Inflation is creeping up again near the BOE’s upper limit to pose a threat to recovery and put policymakers under pressure.

However, after last week’s inflation report, which showed that the BOE Governor Mark Carney had linked the bank’s forward guidance for interest rate to an unemployment rate of 7%, unemployment data is going to gain more attention as it will largely determine the timing of shift in the bank’s policy.

ILO unemployment for the three months through June will linger at 7.8%, while jobless claims will show a drop of 15,000 in July from the prior fall of 21,200 in June.

The BOE predicts unemployment to retreat to the 7% in at least the third quarter of 2016. Yet, Carney revealed that the 7% is not a target for the bank it is just a way to reassess the economy, as the MPC foresees a drop in unemployment to 7.3% at the end of forecast period, which means a breach to the threshold does not mean an immediate rise in borrowing cost.

Carney, however, illustrated that the unemployment target could be abandoned if inflation is heading over the 2.5% rate in the medium term.

BOE minutes for this month’s monetary decision will show how the voting was for holding both interest rate and stimulus at 0.50% and 375 billion pounds.

In July, the vote was unanimous to keep both on hold after MPC members Fisher and Miles had dampened their call for adding to stimulus.

The minutes may show that the vote was also unanimous this month as the recent rise in inflation and progress in economic data will probably prevent any calls for expanding stimulus.

Retail sales with auto fuel will advance 0.7% in July from a prior of 0.2%, according to median forecast.

Euro Area

In the euro zone, investors will pay much attention to second-quarter GDP figures for the 17-nation region which will show whether the economy has left recession or still contracting. 

The euro area will expand 0.2% in the second quarter, following the drop of 0.2% in the quarter through March. The reading is expected to be buoyed by progress in the region’s biggest economies.

Germany will grow 0.6% from 0.1% expansion in the first quarter while France is predicted to expand 0.1% from a prior of -0.2%, where the pace of contraction had eased in both Italy and Spain.

ECB President Mario Draghi said this month that the economy will gradually recover, at subdued pace, later this year, where policy stance should support domestic demand. Recent confidence indicators show signs of improvement from low levels and "tentatively" confirm signs of recovery.

He also confirmed that interest rate would remain at the current low level or even lower for an extended period of time, with no precise deadline for the this extended period, citing the weak euro area economy and "subdued monetary dynamics."