Exactly a week ago, a disastrous retail sales report appeared to end the debate on whether there was or wasn’t a “Boris bounce” for the UK economy following the landslide Conservative victory in December.
Long story short, retail sales have been either flat or fallen for five straight months. That is the worst streak since 1996. The news came on the heels of terribly disappointing inflation data.
Together, the retail sales numbers and the most sluggish headline inflation since November 2016 virtually guaranteed a BoE rate cut – or so folks thought.
Read more: About That ‘Boris Bounce’
Fast forward to Friday, and, hilariously, UK PMIs surged in the flash prints for January, perhaps suggesting the “Boris bounce” wasn’t a myth after all.
Specifically, the composite PMI printed 52.4 in the preliminary read for this month, nearly two handles above consensus, and representing a big bounce from December’s contractionary 49.3. 52.4 is the best read since September of 2018.
IHS Markit and CIPS called this “a decisive change of direction for the private sector economy at the start of 2020”.
As you can see (plainly), the manufacturing gauge jumped too, printing an eight-month high 49.8, on the brink of expansion. The services gauge hit a 16-month high 52.9.
“There were widespread reports that reduced political uncertainty following the general election had a positive impact on business and consumer spending decisions at the start of the year”, the press release reads.
Duncan Brock, Group Director at CIPS, had a colorful take. “Prospects around the future improved through an injection of confidence not seen June 2015. It was only the unravelling of stock in the manufacturing sector that prevented a further rise in purchasing activity and new orders, as threats around disrupted supplies receded”, he began, before warning that although “2020 has started on a positive note with this sudden change in momentum, that’s where the story will end until this uncorked trickle of new orders and activity turns into a flood for businesses hit by hesitancy in the last three years”.
So, what does this mean for the BOE? Well, that’s debatable. 52.4 on the composite gauge will certainly give them pause when it comes to pulling the trigger, and today’s data is the most timely read on the economy.
But you’d hate to be the guys/gals who held off on a necessary rate cut due solely to a single month’s PMI numbers, especially given the criticism these numbers have received in the past for being too sensitive. “It’s a close call”, is a refrain that echoed on Friday among those who care.
The pound initially jumped to a two-week high, only to give it all back (and then some) to trade lower. “It’s a waiting game now”, BMO’s Stephen Gallo said.
Without examining the data–when WIRP is 45 or higher, my guess is that 9 times out of 10 G10 central banks have cut rates in the past 12 months. Would it have to fall to sub-30 on the cut probability to put it out of reach. Post “beer-virus” escalation one imagines the probability might well move back towards 70