UK: Busy Week with BoE in focus – BBH

Research Team at BBH suggests that while the Federal Reserve meeting is the highlight this week, the UK has a number economic reports and the Bank of England's Monetary Policy Committee meets.  

Key Quotes

“The UK reports inflation today, followed employment, and then retail sales a few hours before the central bank decision.”  

“UK price pressures are rising.  The past decline in sterling the rise in commodity prices are evident.  Headline CPI is expected to rise 0.2% in November.  In November 2015, prices were flat.  This means that the due to the base effect, the year-over-year rate is expected to rise to 1.1% from 0.9%.   If that pans out, UK headline CPI will be at its highest level since late October 2014.  Recall that in September-October 2015; the readings were still negative.  The base effect will likely be evident in the December report (December 2015 CPI rose 0.1%), and especially in January (January 2016 CPI fell 0.8%).”

“The core rate pulled back to 1.2% in October from 1.5% in September.  It is expected to tick up to 1.3% in November, which is what it has averaged this year.    However, to the extent that producer prices reflect pipeline pressures, UK consumer inflation is likely to rise further in the coming months.  Input prices which reflect the increase in raw material prices and fuel, as well as the depreciation of sterling.  October input prices were 12.2% above a year ago levels, and they are expected to have accelerated to a 13.5% pace.  Output prices, which are manufactured goods prices have been slower to rise.  The base effect will turn a 0.2% increase in November into a 2.5% year-over-year increase, up from 2.1% in October.”

“The UK labor market growth is not as robust as it has been.  Since 2012, the monthly claimant count has mostly fallen.  However, February seemed to mark the turning point.  Since then, only one month (July) saw a decline in the monthly claimant count.  It has risen in the August through October period and is expected to rise again when the data is reported in the middle of the week.  However, deterioration has yet to be seen in the unemployment rate, which made a new cyclical low in of 4.8% in the three-month period through September and is expected to remain there in October.”

“Earnings growth, which is also reported with an extra month lag, are expected to have ticked up in the three months year-over-year through October, excluding bonuses are expected to have risen 2.6% from a 2.4% pace.   In May through August 2015, weekly earnings rose a 2.8% clip but may have been a bit of a statistical fluke, as it finished the end of the year at 2.0% pace.  Including bonuses, the average weekly earnings are expected to be stable for the third month at 2.3%.”   

“Retail sales jumped an outsized 1.9% in October, and will lucky to simply be flat in November.  Cooler weather in October spurred early winter clothing purchases, and past decline in sterling may have enticed tourists (foreign consumers), including Chinese shopper during their national holiday in early October.  The 7.4% year-over-year pace reported from October was the strongest since 2002.  Flat sales on the month will push the year-over-year rate to a still respectable 5.9% pace.”

“The Bank of England meeting concludes the day after the Fed's meeting.  While the Fed is widely expected to hike rates, the BOE will leave rates on hold.  There is a 16 bp spread between the implied yield of the Dec 2016 short-sterling futures contract and the Dec 2017 contract  (53 bp and 38 bp respectively).  This is consistent with no change in policy next year.”