The Bank of England squares up to a rate-setting dilemma as - one day before the MPC decision - UK retailer Next warns of 'extremely volatile' trading conditions amid fragile consumer confidence, but manufacturers describe robust growth and rising inflation pressures. David Pollard reports.
Even as the Bank of England's rate decision loomed, there was last-minute news to ponder. Next warning of 'extremely volatile' trading, amid unseasonal weather. A darling of UK retail, it's seen its shares rise by 26 per cent in three months. The warning knocked over eight per cent off that gain - as economists looked at the bigger picture. (SOUNDBITE) (English) CMC MARKETS, MARKET ANALYST, DAVID MADDEN, SAYING: "Inflation is ticking higher so we are seeing your average British consumer being squeezed and that has been translated into slightly weaker sales or underperforming sales at retailers such as Next." If that's why the Bank might think twice about hiking, UK manufacturing tells a different story. The latest PMI reading is actually higher than expected, and above its long-run average. Manufacturers report raw material costs as rising by their most since March. (SOUNDBITE) (English) CMC MARKETS ANALYST, MICHAEL HEWSON, SAYING: "There's been no evidence whatsoever, I think, that the Bank of England is looking to pull back from a rate rise and I think if they didn't raise rates on Thursday it would be a huge surprise." And with inflation headlining at three per cent - and tipped for more - most economists do see a hike on Thursday. Though many in September's Reuters poll also thought now was not the time for one. Even so, they're likely to take it in their stride. (SOUNDBITE) (English) CMC MARKETS, MARKET ANALYST, DAVID MADDEN, SAYING: "Fair enough, there is the biggest uncertainty in relation to how the Brexit negotiations are going, but if you do see a rate hike tomorrow I don't think we're going to see any kind of drastic reaction in terms of consumers or the financial markets. " The bigger concern, though, is growth. At 0.4 per cent in Q3, it gave its weakest year-on-year performance in four years. The near certainty of a rate hike not matched by certainty over the UK economy.