Ifo, a widely watched business climate index, said Tuesday that its index for Germany rose to 106.8 in June from an upwardly revised 105.7 in May, beating expectations.

Economists polled by the AFX financial news wire had forecast the index to dip to 105.2.
The business assessment index, which measures current conditions, climbed to 109.4 from 107.3 in May. Economists were looking for a June reading of 107.5.

The business expectations rose to 104.2 in June from 104.0 in the previous month, coming in above the 104.0 consensus forecast.

“The economic recovery continues to be robust,” said Ifo executive board member Gebhard Flaig.

“The decline of the business expectations did not continue; this time slightly more firms expect further improvement over the next six months,” he said.

SOURCE: AFP

The decision-making body of the BoE, the Monetary Policy Committee (MPC), will likely freeze the “repo” rate, at which the central bank lends to commercial banks, according to a poll of 35 forecasters by AFP’s financial news service AFX News.
However, economists are speculating that the cost of borrowing could rise as soon as August to keep inflation in check.

The MPC, starting two-day deliberations on Wednesday, had warned last month that inflation would overstep its key 2.0-percent inflation target within two years if the cost of borrowing remained at the current level.

“No change is widely expected on Thursday, but on balance we still think the Bank will hike rates in August to 4.75 percent,” said Investec Securities economist Philip Shaw.
In May’s quarterly Inflation Report, the BoE had predicted that soaring oil prices would help push 12-month inflation above the government-set 2.0-percent target in the near-term, before dropping back to around target.

That fuelled expectations that the MPC was gearing up for a rate hike some time this year.
British 12-month inflation rose to 2.0 percent in April from 1.8 percent in March, lifted by an increase in air fares and rising domestic gas and electricity bills.
Other recent developments would also affect the rate-setting body’s decision this month, according to HSBC economist John Butler.

“Since the Inflation Report, the key developments have been a sharp drop in equity prices and a 3.0-percent rise in trade-weighted sterling,” Butler said.
“Both moves should dampen the committee’s fear of inflation and, hence, keep the MPC on hold.”

Last month the bank froze the cost of borrowing in Britain at 4.50 percent in May for the ninth month in a row against a backdrop of steady economic growth.
The MPC was split three ways in May’s interest rate vote for the first time for nearly eight years, minutes from the meeting showed.
Six MPC members, including BoE governor Mervyn King, had voted to keep interest rates unchanged at 4.50 percent, while David Walton voted for a quarter-point rise and Steve Nickell, in his final meeting, called for a quarter-point cut.

Following the departure of Nickell — who has voted for a cut on six consecutive occasions — the MPC now has a bias towards monetary tightening, according to HSBC’s Butler.
Nickell is being replaced on the Committee by David Blanchflower, professor of economics at Dartmouth College in the United States, who has run into controversy with his plan to split his time between the Britain and America.

The vote in May marked the first time the committee had split three ways since August 1998, and was only the third time since the bank was granted its independence by Britain’s Labour government in 1997.

The MPC has been reduced to eight members for its April, May and June meetings, after senior member Richard Lambert left his post ahead of becoming the new boss of employers’ body the Confederation of British Industry.

SOURCE: AFP