Cheerio! This week is shaping up to be another eventful one for sterling since we’ve got three top-tier economic reports up for release. If you’re planning on trading the pound or if you’ve already got positions open, better keep an eye out for these potential catalysts.
1. U.K. CPI (Feb. 14, 9:30 am GMT)
First up, we’ve got inflation reports up for release on Valentine’s Day and traders might show some love for the pound if the actual results come in line with expectations. Analysts project that the headline CPI advanced from 1.6% to 1.9% in January and that core CPI ticked up from 1.6% to 1.7%.
BOE Governor Carney already hinted at stronger inflationary pressures in his recent testimony, as he mentioned that price levels are rising faster than initially anticipated due to the depreciation of the pound over the past few months. To top it off, energy prices and transportation costs have gotten a boost from the steady climb in crude oil since the start of the year.
For the newbies out there, lemme tell you that these CPI readings are a huge deal for the BOE’s monetary policy outlook since it’s the central bank’s mandate to maintain price stability. Also note that BOE official Kristin Forbes recently pointed out that policymakers might need to consider hiking interest rates soon to keep rising inflation in check. “In my view, if the economy remains solid and the pick-up in the nominal data continues, this could soon suggest an increase in Bank Rate,” she noted.
2. U.K. jobs data (Feb. 15, 9:30 am GMT)
Next, we’ve got the employment reports lined up for Wednesday, providing clues on future consumer spending and whether or not the pickup in price levels is translating to higher wages for employees. The claimant count for January is expected to show a 1.1K increase in joblessness, erasing part of the 10.1K increase in hiring seen last December, while the jobless rate could hold steady at 4.8%.
Meanwhile, the average earnings index or the three-month period rolling average of the change in labor costs is expected to stay unchanged at 2.8%. A stronger than expected read or another increase would reflect persistent upside pressure on wages, which would be supportive of stronger overall inflation and spending activity.
Some analysts have pointed out that Brexit fears are starting to impact employment trends as a survey from the Recruitment and Employment Confederation revealed that vacancies are rising while the availability of employees is decreasing partly due to foreseen complications once the U.K. leaves the economic bloc. After all, Prime Minister Theresa May confirmed that they would push for immigration control in upcoming negotiations with the EU, and that has made things more difficult for employers.
3. U.K. retail sales (Feb. 17, 9:30 am GMT)
Lastly, we have the U.K. retail sales report scheduled for release just before the end of the trading week. Consumer spending posted a sharper than expected 1.9% tumble in December as rising price levels have started to dampen households’ purchasing power. In fact, the December report indicated a 5.3% month-over-month decline in online shopping as imported goods became relatively more expensive on account of the pound’s weakness.
For the month of January, a 0.9% rebound in headline retail sales is eyed while core retail sales could post a 0.7% increase. This should translate to a 3.4% year-over-year increase for the headline figure and a 3.9% gain for the core version of the report. A lower than expected outcome or another negative reading, however, could reflect faltering consumer confidence and potential downside pressure on business production and growth.
What’s your game plan for these top-tier releases? Think the U.K. economy could post another batch of strong readings even with Brexit risks on the horizon?