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UK inflation rose to 2.6% in November ahead of tomorrow's BoE meeting. Editorial credit: Jane Rix, via Shutterstock.
UK inflation ticked up again in November to reach 2.6%, its highest mark since March. Higher costs of recreation and leisure (things like live music tickets and computer games) along with housing and utilities were the main drivers of the increase. The pound lost a little ground to its rivals this morning as some economists had expected inflation to climb even higher.
GBP/EUR nearly matched its recent post-Brexit highs on Tuesday. Sterling also recorded marginal gains over the US dollar, which ceded some dominance on the back of retail sales data and tonight’s interest rate decision from the Federal Reserve.
Strong earnings numbers are prompting markets to go back to the drawing board on future Bank of England rate cuts. In the three months to October, UK workers secured an average annual 5.2% pay rise (including bonuses), as the pace of wage growth quickened across both the private and public sectors.
For the eurozone, Tuesday was a case of some good and some bad. The German Ifo (Institute for economic research) business climate survey fell to its lowest level since May 2020. “The weakness of the German economy has become chronic”, the Ifo declared.
However, the ZEW economic sentiment index – a more consumer-heavy study – released just an hour later told a different story. By that measure, German consumers were unexpectedly upbeat to begin this month, as expectations of political change started to boost hopes for the future.
US retail sales meanwhile increased by 0.7% month-on-month in November. That was above forecasts but still didn’t meet expectations in some quarters. Drilling further into the data, sales growth was mediocre outside of a limited number of key goods (vehicles and fuel, for example).
The Canadian dollar resumed its struggles yesterday after headline consumer price inflation dipped below 2% again. The Canadian dollar ended the day down against both the pound and the US dollar.
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GBP: Strong start but risks still to come
The pound has had a very good few days that have seen it climb against its main rivals. It’s still too soon to say if sterling is out of the woods yet, although there is a sharpening light at the end of what is proving to be a rather hectic week on the data front.
GBP/USD: the past year
EUR: Mixed messages
German businesses and consumers seem to be singing from two entirely different hymn sheets. Consumers are looking forward to the promise of a new government but businesses seem to be more realistic about short-term pain. Germany’s upcoming elections – now set for late February – should provide more direction.
GBP/EUR: the past year
USD: Quiet before the storm
The US will see just one significant data release before tonight’s Fed meeting, which comes in the shape of preliminary building permits. The Federal Reserve is expected to cut interest rates by 0.25%, a move that could have a powerful effect on the US dollar right before the Christmas break.
EUR/USD: the past year
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