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20 May 2014
Analyst Roundup: UK inflation data
FXStreet (London) - UK consumer price index inflation increased to 1.8 percent year-on-year in July, the first increase since July 2013 after hitting 1.6 percent in March. However, the timing of Easter this year may have has a part to play in the numbers, particularly with price pressures in the transport sector. However, prices remain below the Bank of England’s 2 percent target.
ING Bank – James Knightley, Senior Global Economist
This isn’t going to be particularly significant in the BoE policy debate in the near-term with lagged effects of sterling strength set to continue depressing prices while today’s producer price inflation numbers suggest that pipeline inflation pressures remain benign. Instead it is wages that are key for the Bank of England as they link the labour market to inflation.
There are only tentative signs of them picking up, but we feel that momentum will build over the coming year given labour market hiring intentions are good, pay awards are rising and the national minimum wage is being increased by 3 percent this year. In an environment of firm economic growth and strengthening corporate pricing power we feel that CPI will gradually grind higher over coming quarters.
Rabobank – Jane Foley, Senior Currency Strategist
After a strong start to the month, sterling has lacked real direction in recent sessions. The pound remains the best performing developed world currency on a 12-month view, but last week’s publication of the BoE’s Quarterly Inflation Report put paid to further upside. The Report was accused of being dovish. We maintain the view that the Bank’s tone has been consistent for some time but that it appeared dovish mostly because market expectations regarding the timing of the first BoE rate hike of the cycle has become overly optimistic. Recently, talk had appeared in the market about the risk of a UK rate hike before the end of the year, in part because of the strength of the housing market. However, BoE Governor Carney has chosen to distance himself from the risk of a housing bubble, recently taking the view that the real issues lies with the shortage of housing over which the Bank have no control.
We expect that doves to remain in control of the MPC for some time to come. In view of the need to support both the external sector and the recovery in business investment and bearing in mind the monetary tightening implied by the stronger tone of the pound over the past year, there is good reason for the Bank to hold off from raising interest rates for some time. We maintain the view that the first hike in BoE rates is unlikely before May 2015.
Brown Brothers Harriman – Marc Chandler, Global Head of Currency Strategy
We would not want to exaggerate the tick up in UK inflation. First, the rise in the CPI is almost wholly accountable to the increase in transportation costs (0.4 percent). Nearly all other components fell. The exceptions were clothing and footwear (0.08 percent) and furniture and household goods (0.02 percent). Second, producer prices remain subdued. Input prices fell 1.1 percent in April. The consensus was for a 0.2 percent decline. Output prices were flat. Economists had expected a 0.2 percent increase. Third, the ONS measures of house prices were considerably slower than expected at 8 percent on a year-on-year basis in March. This is down from the upwardly revised 9.2 percent in February. The market had expected a 9.6 percent increase.
ING Bank – James Knightley, Senior Global Economist
This isn’t going to be particularly significant in the BoE policy debate in the near-term with lagged effects of sterling strength set to continue depressing prices while today’s producer price inflation numbers suggest that pipeline inflation pressures remain benign. Instead it is wages that are key for the Bank of England as they link the labour market to inflation.
There are only tentative signs of them picking up, but we feel that momentum will build over the coming year given labour market hiring intentions are good, pay awards are rising and the national minimum wage is being increased by 3 percent this year. In an environment of firm economic growth and strengthening corporate pricing power we feel that CPI will gradually grind higher over coming quarters.
Rabobank – Jane Foley, Senior Currency Strategist
After a strong start to the month, sterling has lacked real direction in recent sessions. The pound remains the best performing developed world currency on a 12-month view, but last week’s publication of the BoE’s Quarterly Inflation Report put paid to further upside. The Report was accused of being dovish. We maintain the view that the Bank’s tone has been consistent for some time but that it appeared dovish mostly because market expectations regarding the timing of the first BoE rate hike of the cycle has become overly optimistic. Recently, talk had appeared in the market about the risk of a UK rate hike before the end of the year, in part because of the strength of the housing market. However, BoE Governor Carney has chosen to distance himself from the risk of a housing bubble, recently taking the view that the real issues lies with the shortage of housing over which the Bank have no control.
We expect that doves to remain in control of the MPC for some time to come. In view of the need to support both the external sector and the recovery in business investment and bearing in mind the monetary tightening implied by the stronger tone of the pound over the past year, there is good reason for the Bank to hold off from raising interest rates for some time. We maintain the view that the first hike in BoE rates is unlikely before May 2015.
Brown Brothers Harriman – Marc Chandler, Global Head of Currency Strategy
We would not want to exaggerate the tick up in UK inflation. First, the rise in the CPI is almost wholly accountable to the increase in transportation costs (0.4 percent). Nearly all other components fell. The exceptions were clothing and footwear (0.08 percent) and furniture and household goods (0.02 percent). Second, producer prices remain subdued. Input prices fell 1.1 percent in April. The consensus was for a 0.2 percent decline. Output prices were flat. Economists had expected a 0.2 percent increase. Third, the ONS measures of house prices were considerably slower than expected at 8 percent on a year-on-year basis in March. This is down from the upwardly revised 9.2 percent in February. The market had expected a 9.6 percent increase.