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Inflation rose for the first time in 2024 this July, rising to 2.2%
This morning, consumer price inflation in the UK fell to 8.7% year-on-year in April, the lowest since March 2022. This was fuelled by a sharp slowdown in electricity and gas prices.
The inflation rate exceeded market expectations of 8.5% but remains well above the Bank of England’s (BoE) 2% target.
The pound surged following the inflation data release, gaining 0.35% against the euro. However, sterling struggled to hold onto those gains, maintaining 0.15% rise. The GBP/EUR rate is currently up 0.5% on the week and over 1.5% on the month.
Yesterday the spotlight shone on private sector PMI data from all our major currency zones. In the UK, private sector growth slowed in May to 53.9, down from April’s 12-month high reading of 54.9. Market forecasts estimated a reading of 54.6.
This revealed firms in the UK services sector hiked prices, despite the rate of inflation being at its second lowest since August 2021. Production levels at manufacturing firms fell at the fastest pace seen in four months.
It was a different story in the US though. There, the private sector recorded the strongest monthly growth in 13 months. The S&P Global Composite PMI rose to 54.5 in May from 53.4 in April. This far exceeded market forecasts of 50.
After the PMI data release, key US stock The Dow Jones cut some losses, trading around the flatline towards the end of the day. The stock fell as much as 173 points.
The dollar index edged higher yesterday, following comments from several Federal Reserve (Fed) officials, regaining positions not seen since mid-March. The comments raised expectations of prolonged higher rate hikes.
Speaking to the Treasury Committee on Tuesday, Bank of England (BoE) governor Andrew Bailey told MPs that he believed UK inflation has “turned the corner”. He also said that the central bank had “very big lessons to learn” as inflation hit a double-digit record high late last year.
Later this morning we will hear from the Ifo on Germany’s business climate, which is expected to rise by 0.4 points in May.
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GBP: UK to avoid a recession
Yesterday the International Monetary Fund (IMF) reported it no longer expects the UK economy to fall into a recession this year. In updated forecasts, the IMF estimates the economy to grow by 0.4% in 2023, rather than shrink by 0.3% as April forecasts suggested.
GBP/USD: the past year
EUR: Robust private sector
Yesterday markets heard the HCOB Eurozone Composite PMI fell to 53.3 in May from 54.1 in April. This represents the lowest reading in three months but a fifth consecutive month of expansion in private sector activity.
USD: US home sales rose in April
New home sales in the US exceeded market expectations in April, jumping 4.1% month-over-month to a seasonally adjusted rate of 683,000. This is the highest level seen since March last year and exceeded economist expectations of 665,000.
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