Do UK inflation data show the BoE’s strategy is working?

Will UK December inflation data show that the BoE’s tightening policy is paying off?

UK inflation is expected to moderate again in December, following trends in the Eurozone and US.

Economists polled by Reuters expect the annual rate of the UK consumer price index, due for release on Wednesday, to fall to 10.6% in December. This would be his second consecutive slowdown from his 11.1% in October, which was a 41-year peak, slightly lower than his 10.7% in November.

Samuel Toombs, an economist at Pantheon Macroeconomics, expects lower motor fuel inflation to be one of the main culprits, but further easing in core inflation could lead to a more volatile energy economy. And food prices may be removed. These trends “will push the monetary policy committee to end the tightening cycle soon,” he said.

In the United States, the consumer price index slowed to its lowest level in more than a year in December, and the Eurozone fell more than expected on the back of weaker energy price growth.

Susannah Streeter, market analyst at Hargreaves Lansdowne, said she hopes UK inflation will reflect these developments, but that “a tight job market and unrelenting food price hikes are likely to continue.” likely means it lasts longer,” he warned.

Wage growth is still rising at a steady pace and is expected to continue, according to research closely monitored by the Bank of England. As a result, the market is pricing in a 0.5 percentage point hike when the Monetary Policy Committee meets on February 2nd.

Bank rates have risen from a historic low of 0.1% in November 2021 to their current 3.5%, and are expected to peak at just over 4% this year. Valentina Romei

What do China’s GDP numbers reveal about the health of the economy?

In recent weeks, commodities have seen a series of “rebounds” on the back of expectations that the end of China’s coronavirus-free policy heralds a major boost to economic activity. But high-profile data released this week, including gross domestic product figures released on Tuesday, may give investors pause.

Goldman Sachs economists forecast China’s year-on-year growth of just 1.7% in the fourth quarter of last year, compared with just 2.6% for the full year. This reflects both the continued suppression of Covid-19 he had earlier in this period and the negative impact of ending these measures. Hundreds of millions of infections in a few weeks.

But an earlier sign on the current state of China’s economic health arrives on Monday, when the country’s central bank releases monthly decisions on the one-year medium-term credit facility rate that will act as a floor for the country’s benchmark interest rate. increase. Most economists expect the People’s Bank of China to do well, so any move by the People’s Bank of China to ease could surprise markets.

Some analysts have already sharply lowered their growth forecasts for China in the first quarter. Oxford Economics recently lowered its forecast to 2% from 3.5%, citing concerns about domestic demand.

“Confidence and earnings are too weak to recover quickly,” said Louise Lu, senior economist at Oxford Economics. “And while the authorities are encouraging growth, there are meaningful constraints on further policy easing,” she said. hudson rocket

What are the chances of oil prices rising this year?

Oil is at a crossroads. After starting the year on the back foot after Brent crude plunged below $80 a barrel at the start of the new year to a low not seen since the Ukrainian invasion, crude climbed close to $85 a barrel this week.

There is a clear divide in the market. Some are seeing signs of a demand-killing recession that will limit the ability of oil prices to rise this year. Russia’s crude oil exports have also largely held up despite the tightening of Western sanctions in December, so the market still doesn’t have a big deficit.

However, there are clearly some who see the recent drop in oil as a buying opportunity, and the market is at risk of complacency after a volatile 12 months.

Further sanctions imposed by the EU will ban imports of Russian refined fuels in February. OPEC and its allies, which publish their monthly oil market report on Tuesday, have signaled their willingness to stop the excessive fall in prices.

China’s reopening of the economy and the end of its stringent coronavirus-free policy should ultimately boost demand growth this year. The release of US strategic oil reserves that helped calm markets following the Russian aggression has ended. Even the global economy could be stronger than once expected in 2023 if the European natural gas crisis subsides slightly thanks to a mild winter.

Redburn analysts say the largest oil company could be bought.

“While we are reluctant to jump on the supercycle bandwagon, flat OPEC production, stagnant shale activity and resilient demand combine to make us increasingly positive for oil.” Redburn said. “with [oil] The majors are still trading near record low multiples, and the risk and reward continue to look attractive. ” David Shepard