Good morning,
Mark Carney barely noticed by either the press or the markets
The news that Jeremy Corbyn’s car ran over the toes of a BBC cameraman garnered more press inches than the Bank of England yesterday. Alongside expectations, the Bank’s economists cut growth projections for this year and raised inflation forecasts while issuing a stark warning that real wages will likely be negative for much of this year. The Bank see consumer-facing inflation reaching 2.7% by December this year which, despite still being far below the 4.5% seen in 2011, is still running too hot for wage rises to prevent consumers from losing purchasing power. This rhetoric didn’t hit the headlines today and probably won’t for the next month or so ahead of the election, but when inflation continues to nudge higher, corporates and individuals alike will begin to notice.
UK industrial output beginning to become a problem
More pertinent to the currency markets yesterday were March industrial production numbers, which solidly fell below expectations. Weakness was observed in both manufacturing output numbers as well as energy supply, but the key takeaway was a revision lower in the ONS’ estimate for Q1 production that’ll certainly drag down growth numbers in the next release.
Yesterday’s numbers have extended the recent trend of hard and soft data diverging. Soft data, based on surveys and business confidence, remains high but data derived from ‘hard’ sources such as output, revenue and tax receipts has been weakening. With import costs rising and inflation ticking higher, finance departments are being squeezed and this should filter through to confidence numbers later this year.
US don’t need a weak currency to drive inflation
Here in the UK, inflation’s rising primarily due to import costs. The pound, on a trade-weighted basis, remains lower by over 10% since the referendum and paying more for goods and services overseas has pushed costs higher. In the US, this isn’t the case, but inflation’s still rising. Producer prices rose 2.5% year-on-year which will certainly be fuel for the hawks on the rate-setting committee to press for higher interest rates as soon as June.
Today, the calendar’s relatively light in the UK, but US retail sales and consumer inflation numbers cross the wires at 1330BST.
Have a great weekend.