Industrial output expands by 7.1% in Dec

14 February, 2018, 18:04 | Author: Regina Lloyd
  • Volatile stock markets recover from US inflation scare

Inflation for the December grew to 17 months high and was recorded at 5.21%.

Clothing prices helped to prop up the inflation figure despite having fallen 3.7 per cent month on month, which marked a weaker drop compared to the 4.3 per cent fall during the same period a year earlier.

The rate of price rises had been widely expected to fall for a second month in a row but the Office for National Statistics said the figure was the same as in December.

Inflation held steady at 3% in January, raising expectations the Bank of England will lift interest rates in the first half of 2018. Going lower would be equal to pricing out any BoE rate hikes, and to seeing the dollar getting back to its strong overvaluation of previous years.

Stocks went into a tailspin after January's employment report contained a hotter-than-expected gain in wages, prompting a sharp jump in interest rates. Even so our assessment is that this should be modest compared with the past year, especially bearing in mind that sterling has recovered by around 5% in trade weighted terms since its lows last summer.

After rising strongly since the middle of 2016, food price inflation now appears to be slowing.

As per data released by the Central Statistics Office (CSO), Ministry of Statistics and Programme Implementation, food inflation saw a marginal decline to 4.70 percent in January from 4.96 percent in December previous year. ' However, figures pointing to sticky price growth may push Governor Mark Caney and prepare United Kingdom households and businesses for higher borrowing-costs as 't he Committee judges that, were the economy to evolve broadly in line with the February Inflation Report projections, monetary policy would need to be tightened somewhat earlier and by a somewhat greater extent over the forecast period than anticipated at the time of the November Report, in order to return inflation sustainably to the target.

Inflation was given a steep boost by the UK's vote in 2016 to leave the European Union.

The Brexit referendum pushed down the pound, in turn hiking the cost of imported goods. After its December 2017 meeting, the central bank said it was planning three more such hikes in 2018. Core inflation, which strips out more volatile price swings, rose 2.7% - more than expected.

Interestingly, while Morgan Stanley sees improvement in both inflation and trade deficit numbers in January, it has flagged concern that "moderate risks to macro stability are emerging on account of the wider-than-targeted fiscal deficits".

It said the Retail Prices Index (RPI), which is used to calculate payments on government bonds, student loans and other commercial contracts, edged down to 4% from December's six-year high of 4.1%. The year-on-year increase in the CPI is seen slowing to 1.9 percent from 2.1 percent in December because of less favorable base effects.



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