BoE Rate Hike Questioned as UK Data Disappoints

European equity markets are expected to bounce back at the open on Thursday following a similar move in Asia overnight as traders eye more data from the UK and the US.

While the most important event impacting the pound over the last couple of days has arguably been taking place in parliament where MPs have been voting on hundreds of proposed changes to the Brexit bill, there has also been a lot of UK Economic numbers being released and Retail Sales data for October will complete the hatrick this morning.

The data has become all the more important by the Bank of England’s decision to raise interest rates despite the economy slowing and facing significant headwinds over the coming years, a decision that has been criticised by many. As yet this week, the inflation and jobs data we’ve seen haven’t been particularly supportive of the decision, instead indicating the central bank may have been a little premature with the CPI numbers alone being below what the BoE anticipated.

No Conviction

Retail Sales Set For First Annual Decline Since Early 2013

Retail sales have been on a very clear downtrend since last year’s Brexit vote and today’s numbers are not expected to suggest this trend is changing. This creates further challenges for an economy that is extremely reliant on the consumer but at the same time is entirely unsurprising given the squeeze on real incomes as a result of the Brexit vote and the impact this typically has. A 0.6% year on year decline is expected which would be the first annual drop in spending in four and a half years, at which point the country was flirting with recession.

Real Wage Growth (Purple) vs Retail Sales (YoY)

Source – Thomson Reuters Eikon

USD Rebounds Ahead of Another Batch of Economic Reports

We’ll get plenty more economic data from the US again today, which follows Wednesday’s surprisingly upbeat inflation and retail sales figures, both of which supported the case for another rate hike in December. While this has rarely been in doubt and at this point is more than 90% priced in, there has long been concerns that the data is not improving as the Fed had hoped putting future rate increases at risk.

Gold Slightly Lower as Markets Digest Consumer Spending and Inflation Numbers

However, the recent bounce in spending and inflation – albeit not the Fed’s preferred measure – has helped and supported a stumbling dollar in the process. The greenback had been on a slippery slope the last week or so, potentially driven by the growing number of issues with the two tax reform bills now making their way through the House and the Senate, and yesterday’s data offered some decent reprieve.

With jobless claims, the Philly Fed manufacturing survey, industrial production and capacity utilisation data all being released today, the dollar will once again be in focus and another positive session may boost sentiment towards the otherwise stumbling greenback.

Economic Calendar

For a look at all of today’s economic events, check out our economic calendar.