Fed not done tightening, but BoE may have to cut

Economic news yesterday followed the recent pattern: okay in the US, weak elsewhere, specifically in the UK.

The US Labor Department reported yesterday that new claims for jobless benefits fell 21,000 to 330,000 last week. More importantly perhaps, the four-week moving average of claims fell to 331,750 from 334,500 in the prior week.

Federal Reserve chairman Alan Greenspan appeared quite sanguine about the US economic outlook in his testimony to the US Congress yesterday.

"The most recent data support the view that the soft readings on the economy observed in the early spring were not presaging a more-serious slowdown in the pace of activity," he said. "Consumer spending firmed again, and indicators of business investment became somewhat more upbeat."

And in his concluding remarks, he said that "the US economy seems to be on a reasonably firm footing, and underlying inflation remains contained".

Steve Ricchiuto, chief US economist at ABN AMRO in New York, was quoted by Reuters as saying: "He's telling you that they're not going to stop tightening."

If only the same could be said for the UK.

UK interest rates held steady as economy weakens
The Bank of England left interest rates at 4.75 percent for the 10th month running on Thursday as evidence builds that the economy may be weakening quickly enough to warrant a rate cut later this year... [M]any in financial markets and a growing number of forecasters now expect the BoE's next rate move to be down, perhaps as soon as August...

A survey this week showed retail sales fell in May on a year earlier and companies have lined up to complain about tough trading conditions... Another fall in house prices in May was further evidence that a property market slowdown which began in earnest late last year is persisting and hurting spending...

Data released shortly before the MPC's decision showed factory output rose 0.9 percent in April, more than expected, but not enough to reverse March's sharp 1.6 percent fall...

Visit National Statistics Online for other UK manufacturing data.

Other indicators reported by the Office for National Statistics yesterday were those for the UK trade deficit, which worsened in April to £3.4 billion compared with the revised deficit for March of £3.2 billion.