British Pound Weekly Forecast: Inflation Expectations And New Covid Cases; Poor Retail Data

There are a number of drivers and potential drawbacks to the Pound Sterling as we approach the November 4 rate decision which justifies a more cautious approach to GBP-based setups.

HOUSEHOLD GOODS STORES DRAG THE RETAIL SECTOR LOWER

UK retail sales for September, compared to September last year, declined significantly from expectations. The 1.3% contraction, spearheaded by lacking figures from the ‘non-food retail stores’ weighed heavy on the wider sector as only a 0.4% contraction was forecasted.

British Pound Weekly Forecast: Inflation Expectations and New Covid Cases; Poor Retail Data

The current series of declining retail data is described by the Office for National Statistics (ONS) as, “the longest period of consecutive monthly falls in history of this series (which began in February 1996)”

British Pound Weekly Forecast: Inflation Expectations and New Covid Cases; Poor Retail Data

Source: Office for National Statistics (ONS)

PMI SENTIMENT DIVERGES FROM CONSUMER SENTIMENT

Flash (preliminary) Markit PMI data beat expectations in both the manufacturing and services sectors. Both readings came in above 50 meaning purchasing managers anticipate an expansion in both sectors.

Consumer confidence readings, however, tell a different story as the reading posted (-17). The survey is forward-looking and asks a sample group of 2000 consumers to gauge their personal financial situation and the overall economic environment for the next 12 months.

British Pound Weekly Forecast: Inflation Expectations and New Covid Cases; Poor Retail Data

INFLATION EXPECTATIONS

One factor, identified by the Gfk survey, adding to consumer pessimism is the current and future level of prices. Global supply chain challenges and increasing demand has lead to sustained elevated fuel and gas prices which is passed on to consumers. 48% of respondents expected prices to increase rapidly in the next 12 months compared to 34% in September.

In addition, the Bank of England’s new chief economist, Huw Pill stated that Britain could surpass a “very uncomfortable” 5% inflation reading over the coming months. These comments were followed be a more cautious disclaimer where the chief economist said, “there’s a bit too much excitement in the focus on rates right now”. The market had priced in a 95% change of an interest rate hike at the November meeting but after Pill’s comments, this has dropped to a little over 57%.

1 2
View single page >> |

Disclaimer: See the full disclosure for DailyFX here.

How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.