Summary
After a quiet day for economic news on Monday, investors have had more to get their teeth into today.
The UK inflation data defied forecasts, with the consumer price index remaining steady at 2.6% in July, compared to expectations of an increase to 2.7%. Falling motor fuel prices were offset by higher prices for clothes, utilities and food.
But the retail price index came in at 3.6%, higher than the forecast 3.5%. That means a hefty price rise is on the cards for rail travellers.
The lower than expected CPI figure led most analysts to suggest a UK interest rate rise was not imminent, which helped send the pound lower.
Elsewhere Germany’s economy grew by 0.6% in the second quarter, but this was slightly below expectations.
And US retail sales were stronger than expected in July, rising 0.6% compared to forecasts of an increase of around 0.4%.
On that note, it’s time to close for the day. Thanks for all your comments, and we’ll be back tomorrow.
The strengthening dollar following the US retail sales numbers has accelerated the decline in the pound. Sterling is now down 0.9% at $1.2848. Craig Erlam, senior market analyst at Oanda, said:
A rebound in retail sales in the US in July has triggered further gains in the US dollar on Tuesday, sending the greenback to its highest level in almost three weeks.
Retail sales have been very underwhelming this year which has contributed to the view that the economy isn’t ready for another rate hike this year. The dollar was already relatively well bid heading into the release on the back of some hawkish comments from William Dudley on Monday and today’s release is doing that no harm. Not only did the July numbers comfortably beat expectations but the June numbers were also revised higher, providing an additional boost for dollar bulls.
While today’s report will likely increase the chances of another rate hike this year, it is still far from being priced in by the markets. The general trend of retail sales still remains worrying, despite the improvement over the last couple of months and 2% inflation still looks a pipe dream. That said, the dollar has been so heavily sold over the course of the year that even a slight unwinding of these trades could provide a near-term boost to the greenback. The dollar index has recently been languishing at levels seen only half a dozen times or so since the start of 2015 but not yet breached. With that in mind, it may take relatively little at the moment to get such a reaction in the dollar.
The strong US retail sales could portend a good third quarter economic performance, and a December rate rise from the Federal Reserve. James Knightley, chief international economist at ING Bank, said:
US retail sales figures for July are very good, rising 0.6% month on month in July versus the consensus 0.3% forecast. There were also big upward revisions from -0.2% month on month to +0.3% month on month for June.
There were broad based gains with 10 of the 13 broad retail categories reporting rising sales. This suggests the household sector is strong and in our view bodes well for a 3% GDP figure for third quarter 2017 growth. With consumer confidence at firm levels, employment continuing to rise and wages showing some evidence of picking up we remain optimistic on the prospects for consumer spending.
The details of the report show that gasoline sales were a drag (-0.4%) due to lower prices and with this category excluded sales were up 0.7%. There were strong performances from motor vehicles and building materials (both up 1.2%) with internet, department stores and miscellaneous stores also performing strongly. The only areas of disappointment were electronics (-0.5%) and clothing (-0.3%).
Markets continue to focus on current low inflation rates, but with the labour market tightening and the growth story looking ok the prevailing view within the Fed is likely to remain that low inflation is merely “transient”. We think inflation will be back at the 2% target by the end of the year and also predict a December Fed rate hike. We continue to expect two more 25bp hikes next year.
The dollar index is benefitting from the positive surprise in the US economic data, key resistance coming up fro DXY at 93.54 - recent high.
— City Index (@CityIndex) August 15, 2017
At the sam time as the US retail sales, there has been more positive data, with the New York Federal Reserve’s Empire State business conditions jumping from 9.8 in July to 25.2 in August. This is better than the expected level of 10, and was the highest since September 2014.
The July retail sales rise was the biggest in seven months, and the figures received a boost from sales of motor vehicles.
Dennis de Jong, managing director at UFX.com, said:
President Donald Trump will be breathing a sigh of relief today after the latest data showed retail sales in the US bounced back from a disappointing couple of months to move into positive territory.
This indicates the US consumer is now choosing to spend rather than save, which bodes well for the economy’s long-term growth and will put Fed chair Janet Yellen in a bullish mood.
US retail sales better than expected
US retail sales rose by a higher than expected 0.6% in July, while the previous month’s figure was revised upwards.
Analysts had been expecting an increase of around 0.4% following two months of decline. But June’s 0.2% fall was revised to a 0.3% increase.
Over in the US, retail sales are due shortly and are expected to show a slight rebound after two months of decline.
In June they fell 0.2% but analysts are forecasting a rise last month to between 0.3% and as much as 0.6%.
HSBC on US Retail Sales: Exp. a pick-up in core measures (support from online sales + restaurants). Auto dealers and gasoline likely fell
— RANsquawk (@RANsquawk) August 15, 2017
The pound is now down 0.7% against the dollar at $1.2872, while against the euro it is down more than 0.4% €1.0951. Connor Campbell, financial analyst at Spreadex, said:
Sterling turned sour this Tuesday after July’s UK CPI reading fell short of analysts’ forecasts.
While, at 2.6%, inflation is still troublesome – especially since wage growth is lurking around the 1.8% mark – it nevertheless wasn’t as high as the expected 2.7%. More importantly, it’s a decent way away from the 2.9% reading seen in May. And given that the Bank of England didn’t pull the rate hike trigger at that level, they’re not going to do it for anything lower, helping to explain why the pound found itself in such a bad mood once the figure was released.
Cable more than doubled its losses and now finds itself back below $1.29 after plunging 0.7%, while against the euro sterling switched from a 0.3% rise to a 0.4% fall, dragging it to yet another fresh 10 month nadir. This allowed the FTSE to overcome its early reticence, the UK index climbing 25 points to sit just underneath the 7400 it abandoned during last week’s North Korea-fearing trading.
UK inflation may have come in lower than expected in July but it is higher than other major economies:
UK inflation remains stable at 2.6pc in July, but well ahead of 2pc target and other major western economies. pic.twitter.com/hcJnCDE3Ns
— Andrew Sentance (@asentance) August 15, 2017
More on the pound’s weakness:
Trade-weighted GBP , is at its lowest level since Nov 2016. It is only 2% away from the lows made during last year's Tory Party Conference pic.twitter.com/XhWvE3u542
— City Index (@CityIndex) August 15, 2017
Here’s our economics editor Larry Elliott on inflation and the rail fare increases:
Rail commuters facing a steep 3.6% increase in ticket prices might find it tough to accept but there is light at the end of the tunnel for UK inflation.
Rising prices have been one of the big economic stories of the past 12 months, but for the past two months the financial markets have been surprised by the weakness of cost-of-living pressures.
The reason for that is simple: the two factors that have been driving inflation higher since the summer of 2016 – higher global oil prices and the sharp fall in the value of sterling after the EU referendum – have almost washed through the system.
A quick look at the Office for National Statistics data for producer prices helps explain what has been going on. Producer prices are a measure of inflation early in the supply chain, since they gauge both the cost to firms of buying in fuel and raw material, and the prices of goods as they leave factory gates.
Fuel and raw material prices rose fast in the second half of 2016, with the annual rate of increase peaking at 19.9% in January. Since then, though, it has fallen month after month, dropping from 10% in June to 6.5% in July.
Larry’s full analysis is here:
The overall inflation figures may be understating the real cost of living for many people, says Simon McCulloch, director of comparethemarket.com:
The fact that inflation has stayed at 2.6% tells only part of the story and certain segments of society are feeling the effects more than others. Our research shows that household bills are increasing at twice the rate of today’s inflation figure, indicating that families - a group that may be more exposed to higher energy, insurance, petrol and broadband costs as well as mortgage payments - are affected in a more acute way than the ONS’s headline 2.6% figure suggests.
Whereas certain elements of the inflationary basket of goods may be remaining flat, households which are already feeling the squeeze are experiencing a period of rapid “billflation”, with the average household paying out £845 a month.
Pound at lowest level for a month against the dollar
Even so, the pound is not acting as if a rate rise is on the cards any time soon. It is now down 0.52% at $1.2893 against the dollar - its lowest level for a month - and 0.35% lower against the euro at €1.0967.
Fawad Razaqzada, market analyst at Forex.com, said:
The pound has been largely out of favour ever since the Bank of England’s last policy meeting a couple of weeks ago, where only two Monetary Policy Committee members voted for a rate rise. Given the recent rise in inflation and the general improvement in the UK economy, the markets were surprised by the BoE’s dovishness. But today’s release of the latest inflation data for the month of July underscores the BoE’s cautious approach... the pound’s immediate reaction was a swift drop.
The fall in the pound has given a lift to the FTSE 100, especially its large number of overseas earners. The leading index is now up 0.4% to a day’s high of 7384.
Well, it seems not everyone thinks a UK interest rate rise before long can be ruled out. Nick Dixon, Pension Director at Aegon, said:
After last month’s surprise dip, inflation remains above target, although it has not continued its upward march in the way many expected. While concerns about stagnant wages, anaemic economic growth, and a reliance on cheap debt remain, sustained above-target inflation is continuing to build the case for an interest rates rise in the not-too-distant future.
Such an increase would present new challenges, and new opportunities, for those owning investments whose valuations are linked with interest rates. All asset classes feel richly valued at present so we take a cautious view in aggregate, with particular concerns around fixed interest, real estate, non-sterling assets and US equities where valuations look particularly high.
The Federation of Small Businesses has called for government help for companies to deal with inflationary pressures. National chairman Mike Cherry, said:
Operating costs for small firms are now at their highest in four years. Increasing inflationary pressure has coincided with a bruising business rates revaluation and rising employment costs. Our entrepreneurs are paying themselves less and further increasing prices in an attempt to handle the strain. Four in ten small firms raised prices in response to April’s National Living Wage increase.
A hike in rail fares in line with today’s RPI will put further pressure on the consumer pocket, leaving all concerned with less to spend and invest. The Government should consider whether this inflationary measure is fit for purpose in the twenty-first century.
The Chancellor needs to give very careful consideration to the upcoming Budget. With small firms feeling the squeeze, any increase in insurance premium tax, fuel duty or other stealth taxes will be bad for investment and job creation. We need to see all tax reliefs maintained, not least entrepreneurs’ relief, which represents an important incentive for our business owners.
Updated
One general conclusion from today’s inflation figures seems to be that they confirm the Bank of England is unlikely to raise interest rates any time soon.
James Smith, economist at ING Bank:
July was another disappointing month for UK inflation. Both headline and core CPI remained unchanged in year on year terms as the impact of the pound’s fall failed to offset a 1.3% decline in petrol prices. It’s hard to pinpoint the weakness to any one-off quirks, but sizeable declines in the prices of clothing, footwear and household goods may potentially suggest that retailers have again had to cut prices to get shoppers buying their summer wares.
Whatever the reason though, we still think headline inflation looks set to inch closer to 3% towards the end of this year as the full extent of sterling’s near-20% fall since November 2015 filters through. But the big question for policymakers is where inflation would be if this currency effect is stripped out. One way of looking at this, by excluding goods with a high import-intensity, suggests that inflation would be slightly below 2% if the pound’s fluctuations are removed.
But what matters for the Bank of England is wage growth. We expect this to hold steady at 2% tomorrow, and in fact, for much of the rest of this year. The combination of slowing economic momentum, political uncertainty and rising import costs mean that firms are likely to have limited incentive to accelerate pay rises.
While today’s data will continue to test the patience of some BoE hawks, we expect the committee as a whole to continue ‘looking through’ inflation spikes in favour of slower growth. We don’t expect a rate hike this year.
Jeremy Cook, chief economist at WorldFirst:
The Brexit vote inflation wave may have already crested. While today’s number is lower than we saw a couple of months ago, it does not mean that inflation in itself is low. The defining driver of the run of higher prices has been the devaluation of the pound following the vote to leave the EU, those declines will start to fall out of the calculations in the coming months.
The Bank of England is not under pressure to raise rates from prices at the moment, and will not be by the end of the year. Of course this could all change if sterling continues its recent decline against the euro.
The lower than expected number is good news, but its importance can only be truly recognised once the context of tomorrow’s wage numbers and Thursday’s retail sales data is taken into account.
Neil Wilson, senior market analyst at ETX Capital:
The expected pickup didn’t happen. Inflation remains cooler and the pound dipped as investors had expected a rebound in July following the surprise drop in June...The data doesn’t radically alter the view on the Bank of England, but it certainly cements the belief that a rate hike this year now looks highly unlikely. The market was positioned for a bit more inflation than we’re getting.
CPI is still expected to peak at 3% later this year before easing back, yet there are signs that inflation may have already peaked. The sterling exchange rate has stabilised, meaning far less pass-through from the weaker pound on the inflation rate. We’re even getting to the stage in the year where the pound will be actually stronger than it was 12 months before, especially against the US dollar. Of course the pass-through from the exchange rate is a little more complex than that, but the broad picture is that the pound is pretty near to where it was last year.
If inflation has peaked, it would be good news for British workers, with wages still falling in real terms (confirmation of this trend is expected in tomorrow’s data). It would also be good news for the UK’s consumer-driven economy, which may ultimately be pound positive if it means resilient growth and the Bank thinks it can hike gently without upsetting wider economic confidence.
Ben Brettell, senior economist at Hargreaves Lansdown:
It now looks quite possible inflation has peaked, and will fall back further incoming months. The year-on-year increase in producers’ raw material costs fell to 6.5% in July – undershooting forecasts for a 7.0% rise. This was down from 10% in June, the biggest month-to-month slowdown in almost five years. Input prices are a leading indicator for consumer price inflation as higher input prices are often ultimately passed on to the consumer, and therefore a lower number here could bode well for softer consumer prices down the line.
All this is good news for the consumer, as it helps alleviate the continuing squeeze on household finances, though pay is still shrinking in real terms for now. Tomorrow’s labour market update is expected to show wage growth remained at 1.8% for the three months to July.
It’s also good news for borrowers – moderating inflation means less pressure on the Bank of England to consider raising interest rates, and will allow the MPC to remove the sticking plaster of ultra-low interest rates very slowly indeed. With only two of the eight members voting for higher rates earlier this month, it seems even a return to 0.5% is some way off for now.
Maike Currie, investment director for personal investing at Fidelity International:
The income squeeze on cash-strapped UK consumers continues with July’s inflation reading showing the CPI (Consumer Price Index) remaining at 2.6%. The main drivers behind this month’s food price inflation are a rise in the cost of bread and cereals, meat and fruit. However, this month the main focus will be on the RPI (Retail Prices Index) reading, as the July figure is used to determine by how much rail fares will increase in the new year. Commuters will face an eye-watering 3.6% increase in the cost of ‘anytime’ and season tickets in England and Wales in 2018, adding to mounting expenses.
UK households continue to feel the squeeze as price rises continue to outpace earnings. Rising inflation coupled with dwindling wage growth means real wages are falling. In its August inflation report, the Bank of England pointed out that uncertainty over the economic outlook may be affecting companies’ willingness to raise pay, projecting that regular pay growth will remain subdued over the rest of 2017.
The Bank expects inflation to fall back towards the 2% target during 2018 as past increases in fuel prices drop out of the annual comparison, but this will mean very little if our earnings fail to keep up with price rises.
Over the longer term, expect rising inflation to be a fleeting occurrence due to a number of economic trends. First, an aging population limits the size of the global workforce, which by corollary suppresses economic activity. Meanwhile rising inequality and the growing cohort of self-employed people with limited earning power, such as Uber drivers in the ‘gig economy’, means less money is being spent.
Less economic activity, and less money spent, means prices are unlikely to be driven upwards, keeping a lid on inflation over the long term.
If inflation stays low and economic growth remains tepid, there is no reason for the Bank of England to risk the economic recovery by putting up interest rates any time soon. Good news for borrowers, bad news for savers and retirees.
Both measures of inflation have been rising steadily since a year ago:
Here’s our news story on how the rise in the retail price index will lead to higher rail fares:
Here’s some commentary on inflation:
Headline and core CPI weaker than expected but producer price inflation a touch stronger than consensus. 1/2
— Duncan Weldon (@DuncanWeldon) August 15, 2017
1. So for the second successive month UK inflation is better than expected and pipeline inflation continues to ease too.
— Gerard Lyons (@DrGerardLyons) August 15, 2017
.2 last month year on year inflation fell in June to 2.6pc & has now held at that in July at 2.6pc which is good news for the economy
— Gerard Lyons (@DrGerardLyons) August 15, 2017
CPI remained unchanged at 2.6% in July. However the BoE expect inflation to rise further this year, peaking at around 3% in Autumn #ukmfg pic.twitter.com/77bQSgMJ3T
— EEF Economics Team (@EEF_Economists) August 15, 2017
UK CPI @ 2.6% in July. Only 3/12 component parts (transport, recreation & communication) have fallen in last 2 mths - make up 33% of basket pic.twitter.com/H9c4SAF7Ka
— Simon French (@shjfrench) August 15, 2017
Weaker than expected #UK #CPI flat (2.6%, core 2.4%), weaker than E core PPI output (2.4%) final nail in coffin of H2 #MPC rate hike: £ down
— marksastley (@astleyeconomics) August 15, 2017
Here’s the UK Treasury’s response to the inflation figures:
Although inflation is likely to start falling next year, we understand some families are concerned today about the cost of living. That is why we have given the lowest paid a pay rise through the National Living Wage and are cutting taxes for 31 million people.
The pound has edged slightly lower against the dollar following the inflation data. It now stands at $1.2923, down 0.3%, as the prospects of any imminent rate rise fade further.
Updated
Key charts
Fuel prices fell by 1.3% between June and July 2017, the fifth successive month of price decreases, said the ONS. Over the same period last year they rose by 0.7%. There were smaller rises for a range of goods and services, but the ONS added:
The 12-month inflation rates for some of the broad groupings (namely food and non-alcoholic beverages; clothing and footwear; miscellaneous goods and services; furniture and household goods) have edged up to the highest seen for several years.
Updated
This chart shows how the consumer prices index (in yellow) had been rising fairly steadily since last summer until last month’s dip:
The Office for National Statistics said falling motor fuel prices were offset by higher prices for clothes, utilities and food.
House prices rose 4.9% in June, said the ONS, compared to 5% in May. This is the weakest since March.
The consumer price index had been expected to rise from 2.6% to 2.7%, rather than hold steady.
But it still means that living standards are being squeezed.
Wage growth has been lagging behind price rises and this is expected to continue in coming months. Economists expect average weekly earnings to have grown by 1.8% year-on-year in the three months to June, the same figure as last time. Stripping out bonuses, the figure is forecast to be 2%.
UK INFLATION STEADY
Breaking: Britain’s inflation rate has unexpectedly held steady at 2.6% in July,.
That’s the consumer price index, which is the Bank of England’s preferred measure when considering the level of interest rates.
The retail price index has climbed to a higher than expected 3.6%. and this is bad news for train passengers: it is the level used by the government to set rail fare increases.
Another reason for the strengthening of the dollar is Monday’s comment from one of the US Federal Reserve members about the prospects of further interest rate rises this year. Lee Hardman, currency analyst at MUFG explains:
The US dollar has strengthened following relatively hawkish comments from Fed Vice Chair William Dudley, who stated that he would “be in favour of doing another rate hike later this year” if the economy continues to hold up in line with his expectations. The recent softer-than-expected US inflation readings do not appear to have dampened his appetite to continue raising rates gradually as much as the market is currently anticipating.
He also signalled that market expectations for a September announcement from the Fed on when it plans to begin shrinking their balance sheet were not “unreasonable”. Overall the comments should offer some support for the US dollar in the near-term but the market is likely to remain sceptical over the likelihood of another rate hike later this year at the current juncture.
Ahead of the UK inflation figures, here’s a list of what economists are expecting the figure to be at the year end:
Here's who's predicting what UK inflation will be at the end of this year. pic.twitter.com/T3uaFKQ7oU
— Rupert Seggins (@Rupert_Seggins) August 15, 2017
Markets are - just about - holding onto their early gains but Rebecca O’Keefe, head of investment at Interactive Investor, is urging caution:
The ease with which equity markets have shrugged off last week’s woes is reassuring, but also a little bit frightening. Reassuring in that it confirms there is a wave of liquidity willing and actively looking for buying opportunities on any dips. Frightening in that markets appear to be utterly invincible to any threat, despite potentially stretched valuations.
It looked like the market was at a tipping point last week, but the robust rally over the past two days suggests that there are still plenty of investors who think otherwise. Trying to call the top of this market has been a fool’s errand over the past few months and the weight of money supporting the market doesn’t show any sign of abating.
Meanwhile after the latest Brexit moves and ahead of the UK inflation figures, the pound is still managing to keep fairly steady, down just 0.2% against the dollar at $1.2939. The dip is partly due to the US currency strengthening as tensions over North Korea ease somewhat.
Updated
The prospect of a deal between the UK and the EU to retain the key benefits of the customs union for a period following Brexit has also done little to lift the pound. Neil Wilson, senior market analyst at ETX Capital, said:
Sterling didn’t budge much at all despite signs we may be in for a smoother Brexit. There was little to no uplift so far from the proposal for Britain to have a customs union with the EU for some years after the official Brexit date in 2019.
The market is treating anything from London with due caution, rightly so given the open splits in the cabinet and precarious tenure of Theresa May.
The real test comes when the third round of Brexit talks begin. If it flies with Michel Barnier and co it could be a lot more pound positive than we’re seeing now. There are also doubts about whether this would be palatable for the Brexit camp in parliament and among voters if it involves compromises on the divorce bill and the free movement of people. It also doesn’t address services, although it is a pretty good guide to what the government will pursue on that front.
If you’re a pound bull this looks like a big step, and a signal that the softer transition side in government is winning the argument, but the sanguine response from the markets only highlights how far we have to go in the negotiation process.
We’ve also got the CPI inflation data out at 09:30 that is keeping money on the side lines for the time being. A rise to 2.7% is expected which is not going to shift the dial on what the market expects from the Bank of England. It will have to be a big beat (which looks unlikely given the retreat last month) to get people talking up a rate hike this year again.”
European markets open higher
With the easing of tensions over North Korea, markets are edging higher at the open.
Ahead of the UK inflation figures, the FTSE 100 has added 0.11% while Germany’s Dax opened 0.5% higher and France’s Cac and Spain’s Ibex are both up 0.4%.
Here’s World First economist Jeremy Cook on the UK inflation figures and the possible effect on the pound:
Gotta say that today’s UK CPI release, unless an absolute flyer, is likely to be negative sterling. Anything on consensus or slightly above
— World First (@World_First) August 15, 2017
is unlikely to prompt people to buy the pound if they believe that the Bank of England hasn’t got the stomach for a rate hike and any fall
— World First (@World_First) August 15, 2017
in inflation naturally takes the pressure off. Indeed, a very low number could be seen as a positive if it undoes some of the real wage pain
— World First (@World_First) August 15, 2017
German GDP continues to grow
The German economy grew by 0.6% in the second quarter, which is good news for Chancellor Merkel ahead of the forthcoming elections, even if the figure was slightly below forecasts.
The quarter on quarter rate was lower than a revised 0.7% figure for the first quarter and the forecast of a similar level for the second three months.
The annualised rate of growth was 2.1%, up from 2% in the first quarter. This was well below the 4% recorded by Japan on Monday, but above the UK’s 1.7%.
The Federal Statistics Office said domestic demand grew but foreign trade slipped back:
The quarter-on-quarter comparison (upon adjustment for price, seasonal and calendar variations) shows that positive contributions came from domestic demand. Final consumption expenditure of both households and general government increased markedly... According to provisional calculations, the development of foreign trade, however, had a downward effect on growth because the price-adjusted quarter-on-quarter increase in imports was considerably larger than that of exports.
Carsten Brzeski at ING Bank said:
The German economy continues its strong performance with another above-trend growth rate of 0.6% QoQ in 2Q 17.
Even in its ninth year, the German economic recovery is still going strong. GDP growth in the second quarter came in at 0.6% QoQ, from a slightly upwardly revised 0.7% QoQ in the first quarter of 2017. On the year, the German economy grew by 2.1%.
The detailed growth components will only be released towards the end of the month but based on monthly data the economy continues firing on all cylinders. Growth was driven by public and private consumption, investment and the construction sector.
Germany’s economic success story goes on and on and on. And there is very little reason to fear a sudden end to the current performance, even though some kind of slowdown from current growth rates looks almost inevitable. The drivers supporting the domestic economy, like record high employment, higher wages and government consumption, might lose some momentum along the way, without turning negative. The same holds for the export sector, where a stronger euro, weaker-than-expected US growth and Brexit uncertainty could take some wind out of the sails without bringing exports to a halt.
While the current growth drivers could lose some momentum, investments could emerge as the new engine going into the second half of the year and beyond. Since the small setback at the turn of the year, production expectations have increased continuously. Order books are filled again and inventories have been reduced. Capacity utilisation in the manufacturing industry has also increased continuously since mid-2016 and is now clearly above its historical average. A combination which under normal circumstances should be a safe bet for stronger investments.
With today’s strong growth data, it will be hard for any opposition party to pick out the economy as a main theme for the final stage of the election campaign. Even Angela Merkel’s junior coalition partner, the social-democratic SPD, finds it hard to get the credits from the electorate for the current strong growth performance. When it comes to the economy, it seems as if Angela Merkel sits in a “winner-takes-it-all” position. The lack of new structural reforms or the lack of investments (both in traditional and digital infrastructure) has so far not affected voters’ preferences.
All in all, the German economy is still thriving and currently the biggest risk is probably policy complacency. Still, it looks increasingly unlikely that economic topics will decide the upcoming elections.
After last week’s market turmoil caused by North Korea and the US being at loggerheads, an easing of the tensions between the two countries has seen a sense of calm return. Not only does North Korea appear to be toning down some of the belligerent rhetoric, but China has stepped in to comply with UN sanctions against the country.
So after Monday’s gains, markets are expected to move higher again at the open:
Our European opening calls:$FTSE 7374 +0.28%
— IGSquawk (@IGSquawk) August 15, 2017
$DAX 12219 +0.44%
$CAC 5141 +0.39%$IBEX 10507 +0.43%$MIB 21785 +0.29%
Agenda: UK inflation figures and US retail sales in focus
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
A busier day for economic figures sees the release of UK inflation data and US retail sales figures for July.
We’ve already had German GDP figures, which have come in slightly below expectations (more shortly.....)
On the UK inflation front, the consumer price index is expected to edge up from 2.6% year on year to 2.7% after a surprise fall in June. Michael Hewson, chief market analyst at CMC Markets UK, said:
When the last set of inflation numbers were released in June they showed a sharp fall in headline CPI from 2.9% to 2.6%, a welcome decline at a time when consumers have been feeling an increasing squeeze on their incomes. This fall raised hopes that inflation may well have peaked and today’s July CPI numbers could well go further in reinforcing that belief, though most expectations are for a tick back higher to 2.7%, while core CPI is also expected to rise to 2.5% from 2.4%.
A rise would be at odds with the recent softening in recent PPI numbers, which have slipped from 20% at the beginning of the year and could come in as low as 6.9% in today’s July numbers, but in line with the Bank of England’s forecasts which suggest we could see 3% before year end.
Despite the Bank’s recent dovishness regarding interest rates, any increase could put that conviction to the test. But with the pound steady at $1.2963, the market clearly believes there is no hurry for the next rate rise.
Meanwhile the retail price index - expected to come in at 3.5% - will be of particular interest to Britain’s train passengers (which, let’s face it, is most of us at one point or another.) For some reason the July RPI is used to calculate rail fare increases which come into effect in January, so prepare for further hikes.
Here’s our preview of the inflation figures:
Elsewhere we get US retail sales figures later which could show a pick-up in consumer spending after an underwhelming second quarter.
The agenda:
9.30 BST: UK inflation figures
1.30 BST: US retail sales
Updated
