Friday April 10, 2015 - 15:47:48 GMT
Share This Story
. - .
ECONOMIC DATA ANALYSIS - UK INFLATION TO HIT A POST-WAR LOW
ANALYSIS FRIDAY 10 APRIL 2015
UK INFLATION TO HIT A POST-WAR LOW
- US retail sales to
provide a timely indication of the economy’s strength as winter recedes
- US and UK headline
inflation to remain subdued, with the latter dropping below zero
- ECB to be encouraged
by signs of euro area revival, although Greece uncertainty persists
Retail sales report a litmus test of US consumers’
The March FOMC minutes showed a diverse set of views within the Committee
regarding the policy outlook, with some members still favouring a June interest
rate hike. However, the meeting took place before the weak March payrolls
release. Moreover, accumulating evidence of a soft quarter of activity for the
US economy have resulted in early estimates of Q1 GDP being gradually lowered,
with median consensus estimates pointing to annualised growth of just 1.4%.
However, with poor winter weather conditions thought to have played a
significant role in the slowdown, the coming week’s retail sales report for
March is expected to provide a ‘less-distorted’ picture of the strength of
domestic consumption, the principle recent driver of growth. A combination of
milder weather, rising real household incomes and firmer saving rates are
expected to have provided a supportive backdrop for retail activity last month
with headline sales expected to have posted a rebound of 0.9%, alleviating fears
of a sharper slowdown in activity.
US headline inflation
to remain close to zero... Alongside a plethora of Fed
speakers, markets will have plenty of other US releases to chew on this week.
The data flow includes February industrial production (Weds), business
inventories (Tues), housing data (Thurs) and business and consumer sentiment
surveys. A reasonable degree of confidence that inflation is set to rise
towards its 2% target was identified by the Committee as one of the factors
that would be necessary for a decision to raise the policy rate. We anticipate
a modest uptick in the March headline rate to 0.1% y/y from 0.0%. As in
previous months, the key focus will be on the core rate, which excludes food
and energy. This is expected to remain at 1.7% for the second consecutive
month, soothing concerns of an incipient deflationary spiral.
approaching a trough... Domestically, the focus will also
be on inflation. Last month saw the headline inflation rate fall to a record
low of 0.0%y/y, largely driven by falls in petrol and food prices. The
peak impact of the cuts to energy tariffs announced so far is set to feed
through into the March numbers. Alongside further weakness in food prices,
these should push inflation lower and we expect a brief dip into negative
territory to -0.1% on Tuesday. Despite the likelihood of near-zero price
inflation over the next few months, the central view of the MPC remains that
the next move in the policy rate is likely to be upward. Notwithstanding a
modest expected decline in the ‘core’ rate of inflation, the ‘sticky’ nature of
this measure suggests that underlying deflationary pressures are not materially
UK labour market data
to hint at need for tighter monetary policy... Arguably,
the UK monetary policy debate will hinge more critically on developments in the
labour market. The latest set of data are forecast to provide further evidence
that the UK labour market continues to tighten. We expect to see a fall in the
unemployment rate to 5.6% alongside some modest acceleration in underlying wage
growth, though volatility in the timing of bonus payments could mean that
improvement in headline pay growth could be deferred to the coming months. This
expected pickup suggests that the Bank of England will increasingly face a
policy dilemma as the year progresses.
ECB to be buoyed by
signs of life in euro area economy... With no change in
policy expected at next week’s meeting, the ECB is likely to focus on early
signs that the bond purchase programme is working, alongside a general firming
in activity evident in both hard data and surveys. However, with potential
risks still emanating from unresolved Greek-related issues, any optimism from ECB
President Draghi is likely to be tempered. Despite Greece clearing its most
recent hurdle of a loan repayment to the IMF, its funding position
remains precarious with the latest Greek reform proposals not expected to
be placed before the Eurogroup until the 24th.
Greece, the strength of the US dollar and signs of slower growth in emerging
markets are likely to be on the agenda at both the G20 and IMF meetings over
the coming week. For the latter, Q1 China GDP is expected to show the slowdown
in activity continued. The annual rate of growth is forecast to slow to around
7%, pointing to the likelihood of further easing measures from the PBoC over
the coming months.
This document, its
contents and any related communication (altogether, the 'Communication') does
not constitute or form part of any offer to sell or an invitation to subscribe
for, hold or purchase any securities or any other investment. This
Communication shall not form the basis of or be relied on in connection with
any contract or commitment whatsoever. This Communication is not intended to
form, and should not form, the basis of any investment decision. This Communication
is not and should not be treated as investment research, a research
recommendation, an opinion or advice. Recipients should conduct their own
independent enquiries and obtain their own professional legal, regulatory, tax
or accounting advice as appropriate. Any transaction which a recipient of this
Communication may subsequently enter into may only be on the basis of such
enquiries and advice, and that recipient’s own knowledge and experience. This
Communication has been prepared by, and is subject to the copyright of, Lloyds.
This Communication may not, in whole or in part, be reproduced, transmitted,
stored in a retrieval system or translated in any other language in any form,
by any means without the prior written consent of Lloyds. This Communication is
provided for information purposes only, and is confidential and may not be
referred to, disclosed, reproduced or redistributed, in whole or in part, to
any other person. This Communication is based on current public information.
Whilst Lloyds TSB ank plc (“Lloyds TSB”) and
Bank of Scotland plc ("Bank of Scotland") have exercised reasonable
care in preparing this material and any views or information expressed or
presented are based on sources it believes to be accurate and reliable, no
representation or warranty, express or implied, is made as to the accuracy,
reliability or completeness of the facts and data contained herein.
This material has been
prepared for information purposes only and Lloyds TSB, Bank of Scotland, their
directors, officers and employees are not responsible for any consequences
arising from any reliance upon such information. Under no circumstances should
this material be treated as an offer or solicitation to offer, to buy or sell
any product or enter into any transaction. If you receive information from us
which is inconsistent with other information which you have received from us,
you should refer this to your Lloyds TSB or Bank of Scotland Relationship
Manager for clarification.
Lloyds Bank Corporate
Markets, Lloyds TSB Corporate Markets and Lloyds TSB are trading names of
Lloyds TSB Bank plc, Lloyds TSB Scotland plc and Bank of Scotland plc. Lloyds
TSB Bank plc. Registered Office: 25
Gresham Street, London EC2V 7HN. Registered in England and Wales no. 2065.
Lloyds TSB Scotland plc. Registered Office: Henry Duncan House, 120 George Street, Edinburgh EH2 4LH.
Registered in Scotland
no. 95237. Bank of Scotland plc. Registered Office: The Mound, Edinburgh EH1 1YZ. Registered in Scotland no.
SC32700. Authorised and regulated by the Financial Services Authority under
registration numbers 119278, 191240 and 169628 respectively.
Forex Trading News
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
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."