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UK Inflation Negative For First Time Since 1960
Britain's annual rate of consumer price inflation fell below zero for the first time since the 1960s, official figures showed on Tuesday, pushed down by lower travel costs due to an early Easter.
The Office for National Statistics said consumer prices fell 0.1 percent in April compared with the same month last year.
Economists taking part in a Reuters poll had expected the consumer price index to remain at zero.
It was the first time that the CPI came in negative since official records for the index began in 1996. Based on comparable estimates going back further, it was the first time that consumer prices showed deflation since 1960, the ONS said.
In monthly terms, prices rose 0.2 percent, the ONS said.
Bank of England Governor Mark Carney said last week that the central bank thought inflation could turn negative imminently, although he reiterated that prices would pick up in the coming months and interest rates were more likely to move up than down.
April's reading leaves inflation well below the BoE's 2 percent target, but for now few economists think Britain is at risk of Japanese-style entrenched price falls.
The wages of workers in Britain have picked up in recent months and figures due to be published on Thursday are expected show that retail sales rose by nearly 4 percent in April compared with the same month last year.
The CPI in April was pushed down by cheaper air and sea fares which the ONS linked to the Easter holidays -- when prices are usually higher -- which this year fell outside the collection period for the April reading of the index.
Last year, Easter fell in the middle of the collection period, meaning the higher fares pushed up the index.
The sharp fall in inflation around the world has been driven by the slump in global oil prices which took place last year, as well as falls in food prices.
The ONS said food prices had fallen about 3 percent in annual terms in each of the last four months, an unprecedented run of such large declines.
But an underlying measure of inflation, which strips out increases in energy, food, alcohol and tobacco, fell in April to its lowest yearly level since March 2001 at 0.8 percent.
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GBP/USD: Sterling Out of Red After MPC Minutes
Sterling rose after the policymakers at the Monetary Policy Committee (MPC) of the Bank of England (BoE) revealed little need to change current policy stance focusing on the medium-term inflation outlook and economic slack absorption within a year from now, the MPC minutes revealed.
The cable is now being traded around $1.5525 mark, up 0.09%, while it hovered just below $1.5500 before the minutes were released.
The MPC minutes said that all nine MPC members voted unanimously in both cases, pushing sterling higher on Wednesday.
The minutes said that inflation will be picking up towards the end of the year.
The Bank of England made no changes to monetary policy at its meeting on May 11, as expected, maintaining its lending rate at a record low of 0.5%. The rate has been held at that level since March 2009. The bank's quantitative easing program was also left unchanged at £375 billion.
Later in the day, the markets will focus on the FOMC minutes that could shed more light on the timing of an interest hike in the US.
"The tone will be particularly important given the downgrades to the growth and inflation forecasts seen in March, particularly in the context of timing expectations, of when a hike might occur. If the minutes are dovish even before the data we've seen this month, then it is reasonable to assume that policymakers are likely to be even more dovish now," Michael Hewson from CMC Markets said.
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GBP/USD: Pound Loses Post-Election Glow, Will Dip in H2: Rabobank
Sterling will be traded lower against its US peer during the second half of the year, possibly around $1.50 levels, Rabobank predicted on Wednesday, pointing to upcoming drags on the currency. However, it will rise against the euro.
"We expect that cable will spend most of H2 trading lower and closer to the 1.50 level than recent levels," Jane Foley, senior currency strategist at Rabobank, wrote in a note.
However, some market analysts predict cable to fall even deeper, with Capital Economics predicting the pair will end the year at the $1.40 mark. (Read the full story here)
The pound was traded flat against the dollar during the European session on Wednesday, hovering at the $1.5508 level.
'Losing glow'
The recent announcement of a July 8 budget should concentrate the market’s mind on the fact that UK growth is likely to be bogged down by austerity in the coming years, the note explained. Furthermore, this will coincide with worries surrounding the UK’s EU membership referendum, which will show sterling in a less attractive light.
"We would also argue that sterling has lost its post election glow," Foley noted.
The comments came the same day as the Bank of England (BoE) minutes showed the bank's monetary policy committee was unanimous in voting to leave interest rates unchanged this month.
However, the decision of whether to hold or raise Bank Rate was "finely balanced" for two MPC members, namely Martin Weale and Ian McCafferty. The two gentlemen recently stopped voting for a rate rise once the inflation rate started to fall faster. (Read the full story here)
Euro to ease
At the same time, the EUR/GBP pair is expected to drop towards the £0.70 mark, the note said, pointing to ongoing QE program in the euro area.
Such a prediction was in-line with a separate forecast from the TDS
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UK Retail Soars Above Estimates on Clothing Sales
Consumers took advantage of higher real income and lower prices and pushed retail sales, both including and excluding fuel, up by 1.2% in April, the latest figures from the Office for National Statistics (ONS) showed on Thursday.
Figures showed a growth in sales in all areas except food stores, where sales fell by 0.1%. The highest rise in sales was in clothing and footwear which was up 5.2%, the highest since April 2011. Kate Davies from the ONS said a warmer than expected April had brought the sale of summer clothes forward. "If you go back to April 2011, (when sales in this sector was up 5.6%) we had similar temperatures," she added.
"Within this sector if April temperatures are colder, we see a sharp fall in clothing sales," Davies added.
Year-on-year sales, both including and excluding fuel, also rose sharply by 4.7%, against expectations of it rising by 3.7% on both accounts. On an annual basis, sales in clothing and footwear rose by 8.7% compared with April last year, which is the largest year-on-year increase since February 2010. Store price inflation fell by 0.9%, the largest annual fall since July 2010.
Online sales in clothing and footwear was high, pushing the average weekly spend online up by 13.1%, when compared with April last year.
Today's release also confirmed a 0.9% increase in sales volumes in the first quarter, which the ONS said was the 25th consecutive month of a quarterly rise, but slower than in the fourth quarter of last year when sales increased 2.2%. The ONS said a solid retail performance in the first quarter should contribute around 0.1 percentage points to total GDP growth.
A steady growth in the retail sector suggests consumers in the UK do not tend to postpone major purchases due to their expectations that prices will continue to fall further in the future – a phenomenon called a deflationary spiral.
Helen Dickinson, Director General of British Retail Consortium, said confidence among consumers was "slowly improving" and "despite profitability being under intense pressure due to changes in shopping habits and promotional activity retail remains a robust pillar of the economy."
David McCorquodale, KPMG’s head of retail said: "Looking ahead, the birth of Princess Charlotte together with the promise of more warm weather on the horizon will boost consumers’ feel good factor and encourage spending as we head into the summer months."
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May 2015 CBI industrial trends survey orders -5 vs +3 exp
May 2015 CBI industrial trends survey orders data report 21 May 2015
Not a good number from the orders but prices picking up will be one for inflation watchers. Improvement in export orders will be welcome. CBI's director of economics, Rain Newton-Smith says the pickup could be from an improvement in the Eurozone but that the strong pound could still provide a challenge
Not a big data point anyway but part of the puzzle nonetheless
GBP/USD: Pair Calm Ahead of Central Banker Speeches and US CPI
The pair continued to be traded in a narrow range after UK public sector data came in positive in the first month of the fiscal year, when Public Sector Net Borrowing was down to £6.0 billion compared to last month's level of £7.9 billion, and the Public Sector Net Cash Requirement came out £6.8 billion, down from March's reading of £8.3 billion.
The currency pair is now changing hands around £1.5670, up 0.07% on the day.
Sterling appreciated against the US Dollar for the second day on Thursday following UK retail sales being announced much higher than expected. The British currency almost managed to erase Tuesday's losses, with the session high even stretching out to 1.57.
In the UK, the Bank of England's Monetary Deputy Governor for Markets and Banking and Monetary Policy Committee member Minouche Shafik will speak, followed by a speech from BoE Governor Mark Carney.
On Thursday, an interesting speech from MPC member Weale looking into the impact of lower oil prices on growth and inflation also concluded that nearly all of the boost to economic growth from lower oil prices is yet to come, which will become clearer throughout the course of this year. However, he also indicated that downside risks to the BoE’s inflation outlook will persist into next year, although they will have faded by 2017 which is more important for the policy outlook.
In the US, April CPI and Federal reserve Banks Chair Yellen's speech might shed more light on the timing of the Fed's rate hike.
"Persistent disappointment in US data continues to undercut attempts by the dollar to regain momentum with US yield support falling back further. Today, we expect April US CPI data to show renewed slowing in the headline y/y rate to a new cycle low of -0.2%, while the core y/y rate should reverse the acceleration from 1.7 to 1.8% recorded in March. While this will still leave the core y/y rate at reasonably healthy levels, the direction of the change will do little to encourage markets to rebuild Fed rate hike expectations." BNP Paribas said in a note today.
"Later in the day, Fed Chair Yellen’s speech offers another chance for the Fed to guide markets to earlier lift-off, but with the FOMC seemingly harbouring the same uncertainties over the latest data as the market, it seems unlikely that she will be very hawkish. We remain constructive on the USD but currently prefer derivatives recommendations." BNP Paribas added further.
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Bank of England comes clean after it's busted on Brexit research
Bank of England accidentally emails newspaper secret research on Brexit
The Bank of England accidentally emailed The Guardian news that it had created a task force to investigate the impact of the UK leaving the EU. The study is called Project Bookend and even included PR notes on how to deny its existence.
After the Guardian published the story, the BOE issued a hastily-written statement.UK Preview: Upward Revisions to Boost Second Reading of Q1 GDP
The first official estimate showed the UK economy had slowed to 0.3% in the first quarter, down from 0.6% in the previous three months. The first reading was based on less than 50% of the data, though, and included only the output side of the economy.
Since the first estimate, the Office for National Statistics (ONS) has published the remaining volume of the output data except the services sector, which has the largest weight on overall GDP (78%) and its data will be published alongside the GDP release next Thursday.
The March figures for manufacturing and construction sectors, combined with the revisions from the previous two months, should add a rounded 0.1% (0.057%) to total GDP, the ONS said. The construction sector enjoyed a stronger end to the first quarter, while industrial production rose above estimates in March and above February's slight rise after manufacturing performed better than expectations.
Much will now depend on the services and whether there are any revisions, or a rebound in March, that might help push the overall growth upward. The fist estimate showed the output in this sector decelerated to 0.5% in the first quarter from 0.9% a quarter before, and was the largest drag on growth.
The second estimate will also include the first set of expenditure figures. Low inflation in the UK allows for higher real income, which should in turn translate into higher spending, and a healthy boost to the overall economic performance.
The retail sector, which accounts for 5.6% of total GDP, continued to rise in the first quarter by 0.9%, which the ONS said was the 25th consecutive month of a quarterly rise, but slower than in the fourth quarter of last year when sales increased 2.2%. Even so, the ONS said a solid retail performance in the first quarter should contribute positively with around 0.1 percentage points to total GDP growth.
Again, a weak trade balance is expected to be among the major offsetting factors on the downside. The first-quarter deficit on trade in goods and services widened by £1.5 billion compared to the previous quarter, which the official statisticians said would be a "drag on GDP."
In the minutes from the May meeting of the Bank of England Monetary Policy Committee, the policymakers said they expected first-quarter growth to be revised up to 0.5% in the final estimate, before picking up further to 0.7% in the second quarter.
The May Inflation Report showed the BoE revised down the UK growth projections in the medium term, saying it was mainly due to "a higher bank rate path, higher exchange rate ... and weaker productivity projections." The central bank cut the 2015 annual growth from the 2.9% it predicted in February down to 2.5% it estimated in May. The Bank then sees growth of 2.6% in 2016 and 2.4% in 2017.
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GBP/USD: Cable Hovers Around $1.55, No Impetus for Movement
The dollar celebrated a huge victory on Friday and strengthened across the board amid improving inflation figures in the US.
Friday’s US inflation data boosted the greenback, leaving the pound in the dust. Consumer prices on a year-on-year basis fell to -0.2% from -0.1% in April, meeting market expectations. The core inflation indicator remained at 1.8% and improved by one notch to 0.3% month-on-moth. Analysts have interpreted the unimpressive price growth figures as encouraging due to continued growth in services.
London trading desks remain closed on Monday due to holidays, leaving only electronic trading active, which results in very low liquidity and volatility. Cable was trading unchanged on the day, hovering around $1.55.
"On the assumption that the Federal Reserve will hike rates in December and so allow for the USD bulls to re-group, we expect that cable will spend much of H2 trading closer to the 1.50 area than current levels," analysts at Rabobank believe.
"While the July budget will help to clarify the outlook for fiscal austerity in the UK, the debate surrounding the UK’s relationship with the EU will take longer to clarify. UK PM Cameron is due to travel to Berlin and Paris next week for talks which could set the tone for his government’s attempt to negotiate reforms that may strengthen the UK electorate's confidence with EU membership," they added.
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GBP/USD: Sterling Trades Firmly Back Above $1.54
Sterling extended overnight gains when the recent strength in the US dollar underwent a slight correction. Most of the upcoming moves are going to be US driven due to lack of incentives on the UK front.
The UK's pound added to previous gains and rebounded from the mid $1.53 area to above $1.54 levels ahead of the opening bell on Wednesday. GBP/USD added 0.23% to $1.5417. Although the US dollar index remains still high, it retreated 0.28% to97.18 before market open in London.
All eyes remain on the US economy and the Fed. Yesterday’s US data certainly echoed Janet Yellen’s recent ‘rates are going up this year’ message, with almost every number beating market expectations.
As far as the Fed is concerned, the Fed’s Lacker (FOMC voter) says June is a good time to begin considering raising interest rates. The US jobs report on June 5 will be crucial in that regard.
The Fed’s Stanley Fischer in a speech yesterday “The Federal Reserve and the Global Economy” said the central bank has done the best it could to prepare market participants for a rate hike.
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