User Name: Password:      Register - Lost password?

Forex News Blog
Back to The Headlines
Monday August 24, 2009 - 09:51:20 GMT
Lloyds TSB Financial Markets -

Share This Story:
| | Email

Economics Weekly - UK price inflation: ‘sticky’ but set to fall further; Weekly economic data preview - Data to show eak UK consumer spending

Economics Weekly - 24 August 2009


UK price inflation: ‘sticky’ but set to fall further



UK consumer price inflation stubbornly high...

In July, UK price inflation was well above financial market expectations, recording a 1.8% annual print, significantly higher than the consensus estimate of 1.5%. The ‘core’ rate, which excludes food, energy,

tobacco & alcohol, rose to 1.8% from 1.6% in June, while both key measures of retail price inflation were also higher at -1.4% (RPI) and 1.2% (RPIX). Although the latest data contrast with the view from the Bank of England that inflation will slow in the near-term (largely due to base effects such as past hikes in utility prices falling out of the annual comparison), the Inflation Report also noted that the monthly profile was likely to be unusually volatile in H2 2009. Month-on-month rates for CPI, core CPI, RPI and RPIX were all unchanged in July compared to June, against expectations of falls of around 0.3%.


...but the trend is downward...

But the big picture trend is that UK price inflation is falling, and was below the Bank of England’s 2% target for a second consecutive month at 1.8% in July, see chart a. Retail price inflation is falling more sharply than consumer price inflation (CPI) because it is more affected by the two and a half percentage point cut in VAT and lower interest rates, but it is the CPI that we will focus on, as it is the key measure used to compare price inflation trends between countries. Looking internationally, the fall in UK price inflation is slower than in other comparable countries, see chart b. The chart shows that US CPI inflation was -2.1% in July, and that eurozone inflation was -0.7%. In Japan, there was deflation of -1.8%, a record low in a decade of falling prices.


But should the inflation outcome for the UK not be viewed as a success for the Monetary Policy Committee (MPC), as the strategy around quantitative easing (QE) is to avoid inflation falling too far below the 2% target? The answer partly lies in whether CPI inflation stays at current levels or falls significantly further in the period ahead – following the path already taken by the other economies shown in chart b. Hence the question: is UK CPI inflation ‘sticky’, i.e., resistant to falling because of some fundamental or structural problem with prices in the UK or will it drop significantly further in the next few months? The official position is clear on this point: ‘It is more likely than not that inflation will temporarily fall below 1% in the autumn...’. The central forecast also shown in the Bank of England’s August Quarterly Inflation Report is that CPI inflation, even on the basis of Bank rate remaining at 0.5% and £175bn of quantitative easing (QE), ends up below the 2% target in two years time.


...and official forecasts show CPI inflation below 2% in 2 years time... This means that as far as the MPC is concerned there is no barrier to CPI inflation falling further in the UK. The minutes of the August MPC even suggested that the MPC was prepared to write an open letter to the Chancellor explaining why inflation had fallen by more than 1% below the 2% target - just as they had to write letters last year explaining why it had risen by 1% above the target. So why, so far, has UK CPI price inflation not fallen as much as it has in the US, eurozone or Japan, as highlighted in chart b? Wage inflation, one of the major influences on price inflation, does not appear to be a reason why UK CPI inflation is higher than in other major developed economies. Chart c shows that UK wage inflation has fallen back as much as the average of other countries. Another major component of CPI inflation is import prices. Chart d shows just how well correlated UK price inflation is with import prices: falling import price pressure means falling CPI inflation pressure.


As import prices have a big role to play in generating CPI inflation, comparing the UK with other major developed countries might be useful in drawing out the differences in CPI inflation between them. Chart e which shows that UK import price falls are not as sharp as in the other countries. This partly explains why UK CPI inflation has not fallen as much as in these other economies. One of the key reasons why UK import price inflation has not fallen as much is due to the rapid depreciation of the pound. Some 13% of the near 30% decline over the last year has been reversed since March, see chart f. If maintained, this implies that UK import price inflation could fall back further. But another reason for believing that UK CPI inflation can fall further is the large negative output gap, the extent to which actual output is below potential output.


...though likely to take a volatile path, CPI inflation will be driven lower by a large negative output gap

The near-term path of CPI is likely to remain volatile, but our forecast shows that it will fall below 1% in September, prompting an open letter to the Chancellor from the Governor of the central banks, see chart a. UK CPI inflation will remain below 1% for some months, and then gradually rise back as economic recovery resumes and the effects of a rise in VAT impact in year on year comparisons. But the large amount of spare capacity in the economy will bear down on inflation in the medium term, even accepting that some of the lost capacity may be scrapped and never brought back into actual production. Based on the economic profile and the implied output gap, a long period of low UK inflation lies ahead. Hence, it is entirely possible that despite a return to positive UK economic growth in Q3, the Bank of England may still embark on more quantitative easing in November.

Trevor Williams, Chief Economist, Corporate Markets

Weekly economic data preview - 24 August 2009


Data to show weak UK consumer spending

The first expenditure breakdown of UK Q2 GDP is likely to confirm that consumer spending and capital spending contracted once again. Although retail sales picked up in the second quarter, total consumer spending will be considerably weaker. The CBI distributive trades survey will provide an early snapshot of retail activity in August. In the eurozone, the German IFO survey is expected to rise for fifth consecutive month, but given the degree of spare capacity in the economy, inflationary pressures are expected to remain weak, with Germany providing an early indication of August CPI inflation. In the US, the Treasury will sell $109bn of government debt securities. The second estimate of US Q2 GDP may be revised lower, but expectations are for a return to growth in the current quarter. Consumer confidence on the Conference Board measure may rise for the first time in three months.


􀂄 UK retail sales volumes have improved in recent months, rising 1.2% on a quarterly basis in the three months to July. However, as chart 1 shows, growth in overall consumer spending has been somewhat weaker than retail sales recently, driven by weaker spending on services. We expect this trend to have continued in Q2, with total consumer spending down about 1% on the quarter. Gross fixed capital formation is also expected to have contracted, weighed by uncertainty regarding economic and housing market prospects, as well as constrained credit availability. We have not pencilled in a revision to overall Q2 GDP, but the risk may be skewed towards a slight upward revision. Looking ahead, we see a fall in the CBI distributive trades survey in August, but consumer confidence may register a marginal improvement. The bottom line is that the strength and sustainability of any recovery is far from certain.


􀂄 The eurozone composite PMI survey rose to 50.0 in August in last week’s release, the strongest level since May 2008. The increase was helped by an unexpected surge in German services PMI to 54.1, well in excess of the 50 ‘no change’ level, while French manufacturing PMI also moved into growth territory at 50.2. The German IFO survey this week is expected to show a fifth consecutive monthly rise from 87.3 to around 88.5 in August. This survey, however, has shown a less buoyant rebound in economic activity than the PMI survey (see chart 2), suggesting that a strong economic recovery is by no means assured, especially as money supply figures could show further weakness in loans growth to households and companies. Inflationary pressures are likely to remain weak, with German annual CPI expected to remain negative.


􀂄 In the US, markets will be digesting the $109bn of supply from the Treasury, comprising $42bn of 2yr, $39bn of 5yr and $28bn of 7yr notes. Data wise, there could be a downward revision to Q2 GDP, but the focus is on whether the recession is near an end. Fed Chairman Bernanke last week said that the global economy is starting to emerge from recession. Durable goods orders are forecast to rebound in July, helped by the cash-for-clunkers programme and stronger aircraft orders. However, any recovery is likely to be gradual. Underlying this expectation, consumer confidence has surprised on the downside recently, though the Conference Board measure this week may show the first rise in three months.

Hann-Ju Ho, Senior Sector Economist



Economic Research,
Lloyds TSB Corporate
10 Gresham Street,
London EC2V 7AE
0207 626 - 1500


Any documentation, reports, correspondence or other material or information in whatever form be it electronic, textual or otherwise is based on sources believed to be reliable, however neither the Bank nor its directors, officers or employees warrant accuracy, completeness or otherwise, or accept responsibility for any error, omission or other inaccuracy, or for any consequences arising from any reliance upon such information. The facts and data contained are not, and should under no circumstances be treated as an offer or solicitation to offer, to buy or sell any product, nor are they intended to be a substitute for commercial judgement or professional or legal advice, and you should not act in reliance upon any of the facts and data contained, without first obtaining professional advice relevant to your circumstances. Expressions of opinion may be subject to change without notice. Although warrants and/or derivative instruments can be utilised for the management of investment risk, some of these products are unsuitable for many investors. The facts and data contained are therefore not intended for the use of private customers (as defined by the FSA Handbook) of Lloyds TSB Bank plc. Lloyds TSB Bank plc is authorised and regulated by the Financial Services Authority and is a signatory to the Banking Codes, and represents only the Scottish Widows and Lloyds TSB Marketing Group for life assurance, pension and investment business.



Forex Trading News

Forex Research

Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

Forex News
Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."

Actionable trading levels delivered to YOUR charts in real-time.

Register To Test Your Amazing Trader

GVI Trading. Potential Price Risk Scale
AA: Major, A: High, B: Medium

Mon 10 Sep 2018
AA 08:30 GB- GDP, Trade, Output
Tue 11 Sep 2018
AA 08:30 GB- Employment Decision
A 09:00 DE- ZEW Survey
Wed 12 Sep 2018
A 12:30 US- PPI
A 14:30 US- EIA Crude
A 18:00 US- Beige Book
Thu 13 Sep 2018
A 1:30 AU- Employment
AA 11:00 GB- Bank of England Decision
AA 11:45 EZ- European Central Bank Decision
A 12:30 US- Weekly Jobless
AA 12:30 US- CPI
Fri 14 Sep 2018
A 08:30 GB- GDP
AA 12:30 US- Retail Sales
A 13:15 US- Industrial Production
AA 14:00 US- prelim University of Michigan

John M. Bland, MBA
co-founding Partner,

Global-View Affiliate Program

We are starting an affiliate program to market some of our products.

Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.

Put the word "affiliate" in the email subject line.

Contact us

Start trading with forex broker Markets Cube

Max McKegg's Daily Forex Trading Forecasts

Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.

Request a TRIAL of Max's Forex Service.


Retail Forex Brokerage Changing!

Are you looking for your first broker or do you need of a new one? There are more critical things to consider than you might have thought.

We were trading long before there were online brokers. Global-View has been directly involved with the industry since its infancy. We've seen everything and are up-to-data with recent regulatory changes.

Our Best Brokers listing section includes:Forex Broker Reviews, Forex Broker Directory, Forex Broker Comparisons and advice on How to Choose a Forex Broker

If would like guidance, advice, or have any concerns at all ASK US. We are here to help you.

SEE Our Best Brokers List

Currency Trading Tools

  • Live rates, currency news, fx charts. 

  • Research reports and currency forecasts.

  • Foreign Exchange database and history.

  • Weekly economic calendar.

Directory of  Forex trading tools

Terms of Use    Disclaimer    Privacy Policy    Contact    Site Map

Forex Forum
Forex Trading Forum
Forex Forum + forex rates
Forex Forum Archives
Forex Forum RSS
Free Registration

Trading Forums
Currency Forum Guide
Forum Directory
Open Forum
Futures Forum
Political Forum
Forex Brokers
Compare Forex Brokers
Forex Broker News
Forex Broker Hotline

Online Forex Trading
Forex Trading Tools
Currency Trading Tools
Forex Database
FX Chart Points
Risk/Carry Trade Chart Points
Economic Calendar
Quicklinks to Economic Data
Currency Futures Swaps
Fibonacci Calculator
Currency Futures Calculator

Forex Education
Forex Learning Center
FX Trading Basics Course
Forex Trading Course
Forex Trading Handbook

Forex Analysis
Forex Forecasts
Interest Rate Forecasts
Central Bank Forecasts

FX Charts and Quotes
Live FX Rates
Live Global Market Quotes
Live Forex Charts
US Dollar Index Chart
Global Chart Gallery
Daily Market Tracker
Forex News
Forex Blog
Forex News
Forex Blog Archives
Forex News RSS
Forex Services
Forex Products
GVI Forex
Free Trials
FX Bookstore
FX Jobs and Careers
Jobs USA
Jobs UK
Jobs Canada

Forex Forum

The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.

Forex News

The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.

Currency Trading

Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by

Forex Brokers

The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.

Forex Trading

Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.

FX Trading

Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.

Forex Blog also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.



By using this website, you are agreeing to our Privacy Policy and Terms of Use, and Cookie Policy

Copyright ©1996-2014 Global-View. All Rights Reserved.
Hosting and Development by Blue 105