UK’s CPI inflation rose unexpectedly in December to 4%, while economists polled by Reuters had expected a modest decline to 3.8%. Core CPI inflation, which excludes volatile food, energy, alcohol, and tobacco prices, came in at an annual 5.1%, above a 4.9% forecast. The Office for National Statistics (ONS) said December's increase in inflation was driven by a rise in tobacco duty.

Rising inflation figures raise questions over the Bank of England’s (BoE) approach to cutting interest rates after raising them to the highest level in the last 16 years. As a result, the pound surged against the US dollar by 0.3% on Wednesday morning.

Finance minister Jeremy Hunt said: “As we have seen in the U.S., France, and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it. We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
 

Chinese GDP Grows In 2023, Surpassing Expectations

A survey published by the National Bureau of Statistics (NBS) showed that the Chinese economy grew by 5.2% in 2023, although the recovery was much harder than anticipated. Economists noted that lower-than-expected demand and the crisis in the property sector played a role in the economy’s struggle to reach pre-Covid levels.

Economists at NBS noted that “at present, our country's government debt level and inflation rate are both low, and the policy toolbox is constantly being enriched," NBS' Kang said. "Fiscal, monetary, and other policies have relatively large room for maneuvering, and there are conditions and space for intensifying the implementation of macro policies.”

Earlier this week, the People’s Bank of China (PBoC) left interest rates unchanged although some economists had been expecting a rate cut. Analysts at Moody’s Analytics said that “the piecemeal rollout of support from mid-year has done little to turn things around. It's clear that China's economy needs extra stimulus. Direct support for households could be the crowbar needed to pry open wallets, but the prospect of such support has been a non-starter for officials in recent years. Instead, monetary easing and new debt issuance for infrastructure, energy, and manufacturing projects look more likely.”
 

IMF: US Economy Resilient Despite Rate Hikes

The International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath told a journalist panel in Davos that the U.S. economy has already seen 75% of the impact of the Federal Reserve’s interest rate hikes.

Gopinath noted that “we have to recognize that there has been a lot of resilience in the economy despite the rate hikes that we have seen ... our estimate is that for the U.S. about three quarters, or 75%, of the transmission has already gone through, and the rest will go through this year.”
 

US Retail Sales December 2023 Report

The US Census Bureau will publish its December retail sales report on Thursday. Market analysts expect retail sales to rise by 0.4% on an annualized basis, with the figure likely being slightly higher than November’s. During 2023, US retail sales delivered positive rates in nine out of twelve months of the year.

Combined with an industrial production report, upbeat retail sales data could allow Fed policymakers to maintain a restrictive monetary policy stance, while a soft report could strengthen the case for rate cuts in March.
 

UK Retail Sales December 2023 Report

On Friday, the Office for National Statistics (ONS) will release its UK retail sales report for December. Market analysts suggest that retail sales increased by 1.1% on an annualized basis but forecast a fall of 0.5% on a month-to-month basis.

Earlier in January, the British Retail Consortium (BRC) reported that spending in cash terms in December was 1.7% higher on a yearly basis, recording a fall in purchases after considering inflation. BRC economists noted that “the festive period failed to make amends for a challenging year of sluggish retail sales growth, as weak consumer confidence continued to hold back spending.”

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