BoE keeps rates on hold

In the UK, the Bank of England left interest rates on hold at 0.5%, which had been the expected outcome despite speculation that there could be an increase.

In the meantime, inflation pressure as measured by producer prices rose 1% in January, twice as much as forecasted, and the most since April.

Meanwhile, core producer prices rose 0.7% in January from the previous month, the most since July 2008.

In the industrial sector, production rose by 0.5% on the month, in line with expectations, mainly driven by increases in electricity and gas output.

The monthly GDP estimate from the National Institute for Economic and Social Research showed that economic growth probably declined by 0.1% in January, while the GDP estimate of the previous month was also sharply revised lower.

In the US, Federal Reserve chairman Ben Bernanke last week said economic conditions were improving and that price stability was the Fed’s overriding objective.

He also said unemployment was unlikely to return to normal levels for several years. This maintained speculation that the Fed would be slow to tighten policy given its dual mandate of price stability and job creation.

Meanwhile, labour market data showed that unemployment benefits dropped to the lowest level since early July 2008, as the number of initial jobless claims fell by a more-than-expected 36,000 to a seasonally adjusted 383,000 in the first week of February.

The fall in claims was partly attributed to the hiring back of employees dismissed due to weather-related reasons in January.

A separate report showed that the budget deficit widened to $49.8 billion in January, the second largest deficit on record for the month.

However, for the fiscal year to date the deficit narrowed to $419bn from $431bn. Having said this, the gap is expected to widen again due to the payroll and business tax cuts.

In the eurozone, the week was relatively light in terms of economic data, with the Sentix investor confidence being the only publication.

This index, which measures investor confidence, rose in February to the highest level in over three years to 16.7, from 10.6 the previous month. This is also higher than the 14 reading economists expected.

This article has been prepared by Bank of Valletta plc for general information purposes only.