Friday February 6, 2015 - 17:34:12 GMT
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ECONOMIC DATA ANALYSIS - BOE QIR TO HIGHLIGHT MEDIUM-TERM RISKS TO INFLATION
ANALYSIS FRIDAY 6 FEBRUARY 2015
QIR TO HIGHLIGHT MEDIUM-TERM RISKS TO INFLATION
- EU leaders meet amid ongoing
tensions over Greek debt resolution
- US ‘core’ retail
sales to bounce back in January
- Euro area GDP to show
modest growth in the fourth quarter
EU leaders set to
meet amid ongoing tensions... Over the past week, the standoff between the new Greek
government and other euro government officials has continued, culminating in
the ECB’s waiver on the eligibility of Greek debt as collateral being lifted.
This effectively increases the cost of raising finance for Greek banks. The
wider issue of Greeces debt burden will be the key topic at the EU Summit, with
the basis for discussions starting at the extraordinary meeting of euro area
finance ministers on Wednesday. With Greece and the Russia/Ukraine
conflict on the agenda, the coming week’s gathering will provide an
undercurrent to market sentiment.
February BOE Inflation Report to acknowledge weaker
price pressures... Ongoing frictions in Europe
represents one of the single biggest tail risks to the UK’s economic outlook.
However, the firm pickups in the January PMIs this week provided confirmation
that the domestic recovery remains on track. With domestic data limited to
second tier releases in the shape of industrial production (Tues) and
construction output (Fri), the delayed Inflation Report on Thursday (to
accommodate Bank officials’ attendance at the G20 meeting in Istanbul) takes
centre stage. With recent inflation outturns much softer than the MPC
anticipated in November, mainly reflecting easing global commodity price
pressures, a downward revision to near-term inflation projections is assured.
We expect the MPC’s medium-term GDP projections to be little changed. However,
the key issue is likely to be the evolution of the amount of slack in the
economy, where the Committee will assess the impact of
stronger-than-anticipated pay growth and ongoing signs of a reduction in labour
market spare capacity. We expect the Bank of England will use a reduction in
its estimate of the amount of slack to around 0.5-1.0% to highlight some risks
to medium-term inflation.
Oil stops sliding... A key
consideration for the near-term inflation outlook remains developments in crude
oil markets. In the past week, crude oil prices have risen by circa 20%. Over
the coming week, key reports from various energy agencies (OPEC, IEA and the
DoE) will provide updated views on the outlook for demand and supply over the
on first estimate of euro area Q4 GDP... After this week’s European
Commission growth upgrades, next week sees several important euro area
releases. These include industrial production (Thurs) and Q4 GDP (Fri). We
expect it to show another quarter of meagre GDP growth of 0.2% q/q. However,
following the ECB’s QE announcement and the improvement in January surveys, the
focus has increasingly shifted to the growth outlook for 2015.
A quiet week for US data releases but punctuated by
speeches from several FOMC members... These will provide
some guidance on the policy outlook in light of January’s strong jobs report.
The data highlight will be January retail sales (Thurs), which are expected to
fall 0.2% m/m on the back of lower gasoline prices. However, the focus may be
more on the core measure (excludes gas station sales), which we expect to post
a 0.5% increase in retail sales. The preliminary Uni. of Michigan consumer
sentiment index for February is also due and we anticipate that it will remain
buoyant. Fed Chair Yellen has attached weight to the survey’s measure of
long-term inflation expectations which, unlike some market-based measures has
held up. This, together with the strong January employment report, suggests
that a Fed rate hike at around mid-year remains a distinct possibility.
Riksbank risks going negative...
Following recent developments in the euro area and continued global deflation
concerns, there are risks that the Riksbank could announce further easing at
its policy meeting in the coming week.
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