Morning Brief – The Week Ahead

During the week ahead the United Kingdom economy is heavily in focus. The US economic data takes a step back as they release only US Retail Sales, however, the UK economy releases Retail Sales, Jobs, and Inflation data this week.

Having raised interest rates by 75bps last month, the Bank of England will be hoping that that inflation doesn’t much too far higher than the 6.5%, and 40-year high, that prices edged up to in September.

The new government’s fiscal plans could also play a part in slowing inflation, with the various tax rises and spending cuts. Wages are holding up reasonably well on a historical basis but remain well below headline inflation levels. The Producer price index inflation gauge does appear to be showing signs of slowing as the Ukraine war rages on.

On the jobs front, the UK unemployment rate fell to a 48 year low of 3.5% in the 3 months to August. Wage growth including bonuses also edged higher to 6%, over the same period, but once again the focus was on the economic activity rate which rose to a record high of 21.7%.

With the new energy price cap kicking in at the beginning of October it’s not hard to see that consumers have been reining back on spending due to uncertainty over the lead up to October, as well as the farce that passes for our political institutions.

With consumer confidence already at or close to record lows, it’s likely that consumers, if they do have money to spend, are probably holding back ahead of the end of the year and the Christmas period.

US Retail sales are also on the table this week. Basically, the USA has own source of natural gas in the form of shale which has kept prices reasonably low.

In September retail sales came in unchanged, while the previous month was revised up to 0.4%. On the control group measure this came in better than expected rising to 0.4%, which appears to show that despite rising prices consumers still have the appetite to spend money.

USA Retail sales are highly volatile and as such the market does only pay a limited amount of attention to them. Still, the US dollar and Treasury yields may move on the release.

Also of note is the UK mini budget this week. Keep a close eye on the pound as the budget is released. A solid budget is sorely needed to put confidence back towards the new UK government.