UK Inflation Hiccup May Buttress Case for BOE Caution

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(Bloomberg) — UK inflation probably surged back above the Bank of England’s target in October, reinforcing the case for policymakers to act cautiously when cutting interest rates.

The consumer price index due on Wednesday rose an annual 2.2%, according to the median of 24 forecasts in a Bloomberg survey. That’s up from 1.7% last month, when it slipped below the BOE’s 2% target for the first time in more than three years. 

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While the headline gauge is seen quickening because of higher energy costs, underlying measures including services inflation are likely to have weakened slightly. 

The overall picture — of slowly moderating but still-excessive price growth — may support the BOE’s gradual approach toward monetary easing so far.

Officials delivered a second quarter-point rate cut in November and avoided sending any signal that faster easing may be needed. The stance is more restrained than that of the neighboring euro zone, and chimes with the unhurried tone espoused in the past week by US Federal Reserve chief Jerome Powell.

What Bloomberg Economics Says:

“Services inflation is likely to ease gradually from here, supporting the case for the BOE moving slowly. We think it will hold rates steady in December before cutting at a quarterly pace in 2025.”

—For full analysis, click here

BOE Governor Andrew Bailey will be grilled on inflation and monetary policy when he appears before lawmakers on the eve of the data release. Questions may focus on the economic impact of the Labour government’s recent budget, and Friday’s news that growth cooled more than expected in the third quarter. 

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Alongside Bailey will be colleagues including Alan Taylor, making his first public remarks as a rate-setter since joining the policy committee in September. Speaking later in the week are Deputy Governor Dave Ramsden and Catherine Mann, the sole voter who wanted no change in borrowing costs this month. 

A glimpse into the health of the UK consumer will arrive on Friday, when retail sales data for October are released. Economists anticipate the numbers showing the first decline in four months. Purchasing manager surveys come out the same day.

Elsewhere, wage numbers in the euro zone, inflation in Canada, and rate decisions from Indonesia to South Africa will be among the highlights. 

Click here for what happened in the past week, and below is our wrap of what’s coming up in the global economy.

US and Canada

The US economic data calendar lightens up in the coming week, with fresh reads on the housing market taking top billing. On Tuesday, a government report is projected to show housing starts in October declined for the third time in four months as builders focus on reducing inventory.

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National Association of Realtors data on Thursday are forecast to show October contract closings on previously-owned homes rose as a decline in mortgage rates the prior month helped spur demand. On Friday, the University of Michigan will issue its final November consumer sentiment index, including responses in the wake of the presidential election.

Lisa Cook, Jeff Schmid, Austan Goolsbee and Beth Hammack are among Fed officials with scheduled events. 

Statistics Canada will release consumer-price data for October, and early estimates suggest inflation may have stayed below the Bank of Canada’s 2% target. The data may help settle a debate over whether officials should cut borrowing costs by 25 or 50 basis points next month. 

• For more, read Bloomberg Economics’ full Week Ahead for the US

Asia

Lenders in China, in line with guidance from the People’s Bank of China, are expected to hold loan prime rates steady after making larger-than-expected cuts last month, leaving the 1-year and 5-year rates at 3.1% and 3.6%, respectively. 

Bloomberg Economics forecasts another 10 basis points of reductions before the end of the year. 

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Elsewhere, Indonesia’s central bank may trim its benchmark rate on Wednesday by a quarter-point, to 5.75%, after consumer inflation eased to the slowest pace in three years. 

Bank of Japan Governor Kazuo Ueda will speak at an annual event on Monday that’s sure to attract close scrutiny for any hints on the timing of the central bank’s next rate hike. At the end of the week, Japan is expected to report that consumer inflation eased a tad in October, to 2.2% — a result that would extend the streak of months at or above the BOJ’s target to 31 months.

The Reserve Bank of Australia releases minutes from its November meeting on Tuesday, and Governor Michele Bullock delivers a speech on Thursday. Australia, Japan and India all get PMI statistics for November on Friday. 

Malaysia and Hong Kong also report consumer price growth in the week ahead. 

Thailand’s economic growth held more or less steady in the third quarter, data Monday may show, while trade figures are due during the week from Malaysia, Japan, Singapore, South Korea and Taiwan.

• For more, read Bloomberg Economics’ full Week Ahead for Asia

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Europe, Middle East, Africa

A hectic week is in store for investors tracking the European Central Bank. Multiple appearances by policymakers are scheduled, including two by President Christine Lagarde. In all, more than half of the Governing Council will speak. 

The ECB will also publish its quarterly wage indicator on Wednesday — a key metric for officials gauging pipeline price pressures — and then its latest assessment of euro-zone financial risks the following day.

Among data releases, the final measure of inflation for October on Tuesday, consumer confidence on Thursday, and then purchasing manager surveys the following day may be highlights. 

Moody’s Ratings is scheduled to reveal a potential update on Italy at the end of the week, its first since the country unveiled plans to get its deficit below the European Union’s 3% ceiling by 2026.

Turning to the Nordics, Denmark will release gross domestic product numbers on Wednesday, with Norway doing so a day later. And in Switzerland, policymaker Petra Tschudin and Swiss National Bank chief Martin Schlegel are scheduled to speak toward the end of the week. 

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• For more, read Bloomberg Economics’ full Week Ahead for EMEA

A bumper selection of monetary decisions are on the calendar across the region: 

• On Tuesday, Hungary’s central bank is poised to keep its rate unchanged after a currency slide following Donald Trump’s election victory.
• Angolan officials may also leave borrowing costs on hold, anticipating inflation will continue to slow.
• Icelandic policymakers on Wednesday are widely expected to deliver a half-point rate cut, following up on last month’s initial reduction of the current cycle.
• In South Africa on Thursday, officials may lower borrowing costs by another 25 basis points, after data the previous day are forecast to show inflation slowing toward the bottom of the central bank’s 3% to 6% target range.
• Rwanda will probably lower its rate by a half point the same day.
• Also on Thursday, Egypt’s central bank may keep borrowing costs steady for a fifth straight meeting, delaying an easing cycle until inflation slows significantly.
• Similarly, Turkey is foreseen staying on hold at 50%, after price growth failed to weaken as quickly as policymakers hoped.
• Eswatini, whose currency is pegged to the rand, will likely follow South Africa and reduce its key rate by a quarter point on Friday.

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Latin America

Colombian data out Monday should underscore some of the weakness at the margins of the economy, even as July-September output numbers show a pickup from the previous three months.

In Chile, third-quarter GDP figures are likely to show a rebound from an April-June slump, though monthly GDP-proxy readings suggest the economy is losing momentum.

Strong second-quarter growth seen in Peru may extend well into the second half. Third-quarter output data will likely show momentum holding steady near the 3.6% annual pace of the three months through June.

The consensus among economists is that Argentina’s recession will begin to ease in the fourth quarter after a deep July-September slump, though the September economic activity reading will likely come in above August’s -3.8% result.

The week winds up with a fairly complete snapshot of Mexico, Latin America’s second-biggest economy. Mid-month consumer price data may highlight why Banxico marked up its fourth-quarter inflation estimate to 4.7% from 4.3%.

Retail sales in September may have risen for a third month, while the final third-quarter output report will reaffirm that Mexico’s economy rebounded on resilient domestic demand and trade with the US, its No. 1 trade partner.

• For more, read Bloomberg Economics’ full Week Ahead for Latin America

—With assistance from Brian Fowler, Laura Dhillon Kane, Vince Golle, Monique Vanek, Robert Jameson, Piotr Skolimowski and Ragnhildur Sigurdardottir.

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