- Core CPI inflation for the UK is at 1.3 per cent for September
- House prices rise in August on back of stamp duty holiday
- Commentators expect monetary stimulus over the winter
Year-on-year headline and core consumer prices index (CPI) inflation in the UK economy rose to 0.5 per cent and 1.3 per cent, respectively in September. Figures published on Wednesday morning reflected the modest late summer recovery in transport services and lingering benefits to the services sector of the government’s Eat Out to Help Out scheme.
Further Covid-19 misery is in store, however, which may lead to central bank action before winter is out. In the view of Jon Cunliffe, chief investment officer at Charles Stanley: “With the economic recovery faltering in the wake of further Covid-related restrictions to free movement, we expect further QE [quantitative easing] from the Bank of England at next month’s Monetary Policy Committee meeting and during 2021.”
House price inflation has been more pronounced. The Office for National Statistics (ONS) reported, also on Wednesday, that prices in August 2020 were up 2.5 per cent on the prior year, a rate up from the (revised) 2.1 per cent year-on-year growth in July.
The ONS cited the changes to stamp duty land tax, buildings transaction tax and land transaction tax as having had a positive effect. Over the long winter months, as the extent of the employment fallout from coronavirus restrictions becomes clear, there could be greater headwinds for house prices.
Alongside the pandemic the UK’s cat-and-mouse games over securing a post-Brexit trade deal with the European Union are continuing. Some figures later this week should underline the importance to both sides of getting a deal.
On Thursday, the UK CBI industrial trends index is published. Last quarter it was down a dismal 48 points, underlying the damage coronavirus has done. Retail sales data for September in the UK comes out on Friday and this is another vital indicator of how well the economy was recovering before the new regional lockdowns start to bite.
Across the English Channel, some important figures should hopefully convince French president Emmanuel Macron that, despite their political clout, it’s worth forcing some compromise on his country’s fishermen. France’s monthly Markit PMI Manufacturing Index and PMI Services Index are both out on Friday and expected to show slight contractions. Corresponding figures for Germany and the wider eurozone may also disappoint as Europe’s second wave of Covid-19 and lockdowns has an effect.
Moving to Asia and on Friday, Japan’s CPI inflation and manufacturing figures should underline the scale of the task facing new prime minister Yoshihide Suga as he presses on with the reform agenda begun under his predecessor.
Next week’s economics
Although there is likely to be pressure on the Bank of England for further QE over winter and into 2021, there could be push back from banks on the idea of negative interest rates. As discussed by Phil Oakley in his recent Alpha report, negative rates turn banking as a business on its head, disincentivising saving and lending.
The UK sets great store by what the housing market says about its economic health and alongside the house prices index from this week, lending data is crucial. The Bank of England mortgage approval figures are out next Thursday. Banks have been pushing back against Boris Johnson’s attempts to cajole them into making riskier mortgage loans and they would have even less incentive in a negative rate environment.
Towards the end of next week there is more important European data, including GDP figures for Germany, France and Spain. There is also Business Climate, Consumer Confidence and Economic Confidence index data for the eurozone due out on Thursday. Not to mention French jobseeker numbers on Tuesday, which could be uncomfortable for president Macron.
Getting to the sharp end of an acrimonious election campaign, there will also be firm focus on the United States. The week begins with US New Home sales figures, before data on durable goods orders, the Home Price Index and all-important Consumer Confidence figures on Tuesday.
This week the Financial Times reported that many Americans now believe President Trump’s policies are hurting the US economy, so it will be interesting to see if that is born out in the consumer confidence data, with the 3 November election date looming.
Wholesale inventories data out on Wednesday should give a picture of the flow of goods through the US economy, which is a tangible indicator less easily manipulated by the toxic political narratives. Then on Thursday, the preliminary GDP Chain price index for the third quarter is expected to show the US economy has returned to growth.
Finally, there are a couple of central bank meetings to watch out for next week. The Bank of Japan will make its next statement about interest rate policy on Thursday. This follows on from equivalent updates from the Bank of Canada on Wednesday. In the new world of modern monetary theory (MMT), where central banks are creating money for governments to spend, it will be worth looking out for any actions in these G7 economies that could be copied elsewhere.
