UK Economy Has Suggested That Inflation Will Drop
Aa
Share
Next week will be important for investors. US releases inflation data. Also the British economy will share inflation data. What's more, this will be an important week for futna investors as not only inflation data will be released, but also PPI, unemployment rate and retail sales.
CPI forecast
Each month's inflation data shows how much these prices have increased since the same day last year.
The CPI inflation report, one of the most important sets of financial data coming from the UK, will be published on February 15th. Economists suggest that headline inflation recorded a small drop (-0.3%), reaching 10.2% (y/o/y) in January. Inflation in the UK is still close to a 40-year high and five times the BoE's target of 2%.
Source: investing.com
Bank of England expectations
There are several reasons why we expect a rapid drop in inflation this year.
First, wholesale energy prices have fallen significantly. In Europe, they have halved in the last three months. You may not have felt the impact of this on your bills yet. But this change will help bring inflation down.
Secondly, BoE expect a sharp drop in the prices of imported goods. That's because some of the production difficulties that companies have faced are starting to subside.
Third, as people have less money to spend, we expect less demand for goods and services in the UK.
All of this should mean that the prices of many things will not rise as fast as they did.
Thus, the Bank of England expects that inflation will start to fall from the middle of this year and will amount to around 4% by the end of the year. BoE expect it to continue to decline towards our 2% target after this period.
Interest rates
The pace of price growth has slowed slightly, but inflation remains close to its 40-year high. In response, the Bank of England raised interest rates to 4%, the highest level in 14 years.
Higher interest rates make it more expensive for people to borrow money to buy things. Higher interest rates also encourage people who can save to save instead of spend. Together, these factors mean there will be less spending in the economy overall.
When people generally spend less on goods and services, the prices of those things tend to rise more slowly. Slower price growth means a lower rate of inflation.
The increase in interest rates means that many people will face higher costs of credit. And some companies will face higher interest rates on loans. We know this will be difficult for many people.
Other data Ahead
The Office for National Statistics (ONS) is expected to publish its ILO unemployment rate report on Tuesday, February 14th. Analysts suggest that the UK’s unemployment rate remained steady at 3.7% in the three months to December.
On Friday February 17th, market analysts will focus on the ONS report regarding January retail sales in the UK. Economists forecast a 1.8% growth on a yearly basis, but zero growth on a month-to-month basis. A better than expected figure could boost the UK pound, whilst a lower than anticipated figure could weaken the currency.
UK GDP
According to the GDP report published by the ONS on February 10, the UK economy recorded zero growth in the final quarter of 2022, in line with analysts' expectations.
Source: investing.com
