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Inflation rose for the first time in 2024 this July, rising to 2.2%
The pound lost 0.5% against the US dollar yesterday as a string of US data renewed the greenback’s strength. However, compared to this time last week, the pound is just under 1.0% higher. Sterling may feel pressure today as all eyes turn to US labour market reports, due this afternoon.
In the US, the index that measures core personal consumption expenditure prices, which exclude food and energy, increased 0.2% month-over-month in July. It maintained the same pace as the previous month and matched market expectations.
At the South African Reserve Bank’s Biennial Conference in Cape Town, Bank of England (BoE) chief economist Huw Pill said, “The key element is that we on the MPC (monetary policy committee) need to see the job through and ensure a lasting and sustainable return of inflation to the 2.0% target.”
Yesterday, minutes from the European Central Bank’s (ECB’s) most recent meeting revealed policymakers were considering the possibility of a September rate hike when they raised Bank Rate in July. However certain members suggested such a move might not be necessary once new projections are disclosed.
Comments from ECB policymaker, Isabel Schnabel, convinced economists that a September rate hike is less likely and as a result, sterling gained 0.35% against the euro but remains largely unchanged since this time last week.
British retailer, Wilko, confirmed yesterday that about a third of staff at its Nottinghamshire head office and warehouses are to be made redundant as the £90 million bid fell through. Discussions around a rival bid from HMV owner, Doug Putman, continue.
This morning, we heard that Chinese factory activity rose to 51.0 in August, representing the biggest expansion in activity since February and exceeding market estimates of 49.3.
Later today, US economists will receive the latest figures for non-farm payrolls, which are expected to come in below average at 180,000 jobs, and the US unemployment rate, which is forecast to remain unchanged at 3.5%.
S&P Global will also release its manufacturing purchasing manager’s index for the UK, US, EU, France, Germany and Italy, today.
The first week of September is set to be relatively quiet on the data front, however the week after brings key inflation and interest rates for the US and Euro Area.
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GBP: Two routes to combat high inflation
Speaking in Cape Town yesterday, Huw Pill presented two options to control UK inflation, recommending the Table Mountain model which would have interest rates rise sharply and come down at a faster rate.
Speaking at the South African Reserve Bank’s Biennial Conference, Pill said, “There may be multiple paths that get you to where you want to be,” Pill said in his speech. “Some of them have rates rising rapidly and falling rapidly in what is sometimes known as the Matterhorn profile.
“The alternative would be to hold restriction for longer in a more steady and resolute way with a profile for interest rates that looks more like the Table Mountain. I would tend to favour the latter.”
GBP/USD: the past year
EUR: Inflation remains unchanged
Euro Area inflation remained unchanged from July’s 5.3% rate this month, higher than expectations of 5.0%. While the avoidance of rising inflation is good news for the Euro Area, the rate remains two and a half times higher than the ECB’s 2.0% target.
USD: Personal spending soars in July
Personal spending in the US jumped 0.8% in July – the most since January 2023 and ahead of market expectations of a 0.7% increase. This increase reflects the US consumer’s resilience to inflation.
This begs the question, could the Federal Reserve have more room to tighten interest rates a little more to bring inflation closer to the central bank’s 2.0% target?
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