In the US, despite expectations of a flat reading, the latest CPI report showed prices rose by 0.1% in November 2023 from the previous month, as the cost of rents offset steep falls in gasoline. Despite the monthly uptick, the annual rate matched expectations continuing to demonstrate a decline marking a five-month low, easing to 3.1%, down from 3.2% in the prior month. The annual core consumer price inflation rate (which excludes volatile items such as food and energy), remained unchanged from October at 4%. All eyes are on the Federal Reserve as it prepares for its interest rate decision due later today. With no surprises in CPI data the markets are expecting another pause, keeping rates within the 5.25-5.50% range.
Meanwhile, in the UK, official data revealed softening of the labour market with a notable deceleration in British wage growth and a drop in the number of vacancies. Whilst data revealed the unemployment rate in the United Kingdom remained unchanged at 4.2% in the three months leading up to October 2023, earnings excluding bonuses rose by 7.3% down from the 7.8% growth rate in the preceding three months. The recent slowdown in regular pay growth follows a peak of 7.9% during the summer, emphasising a marked shift. The Bank of England’s (BoE) worry about persistent strong pay growth, particularly in the private sector, persists, and it emphasizes the challenge of aligning with the 2% inflation target while the broader economy faces stagnation.
In October, the UK experienced a 0.3% month-on-month decline in GDP, a dip from the 0.2% observed in September and falling short of expectations of 0%. This places added strain on policymakers as they approach Thursday’s interest rate decision. The BoE has maintained a firm stance against interest rate cuts in the near future, having raised rates 14 times between December 2021 and August 2023. Inflation has decreased from a peak of 11.1% in October 2022, however the current reading of 4.6% remains more than double the BoE’s target.
Although there is no anticipation of rate cuts, the forthcoming meeting will be pivotal in gauging the BoE’s outlook on economic growth and its potential implications for the trajectory of interest rates.
As mentioned, we are expecting the Feds interest rate decision and US PPI later today. Tomorrow the BoE and European Central Bank will hold their respective monetary policy meetings, markets are expecting no change to current interest rates. Also to come this week we have US retail sales, UK consumer confidence; Chinese industrial production and retail sales.
Kate Mimnagh, Portfolio Economist