Inflation, jobs and wages numbers will move back to the centre of attention across the City this week, and Downing Street could find out it has met its pledge to halve inflation with room to spare.
The Consumer Price Index for October is due on Wednesday morning. It is expected to come in at 4.8%, down from 6.7% for the previous month, and within Rishi Sunak’s 5% target.
The prime minister made the pledge shortly after taking up residence in Number 10 in late October last year. The Bank of England was already running its long period of interest rate hikes to get the double-digit CPI readings toward its own target of 2%.
This week’s reading is expected to allow Sunak to claim victory. But City experts point out that elevated CPI was on the way down anyway as the shockwaves of high energy prices after Russia’s invasion of the Ukraine rippled out of the data.
Analysis from HSBC points out that much of the fall will come as “October’s 25% rise in domestic energy bills is set to drop out of the annual calculation.”
But after the BOE’s hikes – which have constrained household spending via higher mortgage and loan costs – HSBC also expects core CPI, which excludes energy and food, to fall under 6%. The bank said “this represents a near-normalisation in month-on-month core inflation”.
The numbers are of greater significance than usual in Threadneedle Street as well as Westminster. It is the last CPI reading due before the BOE’s last interest-rate setting meeting of 2023, due on 14 December.
ING also expects CPI to “take a big leap downwards”, pointing out that energy prices also “fell by roughly 10% at the start of October,” adding to the effect of last years 25% coming out of the comparative data.
James Knightley at the Dutch bank said: “Barring any enormous upside surprises … we think the Bank will be comfortable with keeping rates unchanged again in December.”
Before CPI takes centre stage, the health of the employment market will be under scrutiny at the start of the Square Mile’s business day on Tuesday.
The national unemployment rate is expected to hold steady at 4.2% for September, while the number of people out of work and claiming beneficts is expected to be up by 15,200, for October, lower than the 20,400 seen the previous month.
Any sustained drop in the new number of claimants is seen in the City as a welcome trend, and a sign that people can find jobs, even if the unemployment rate can take longer to improve.
Businesses, as well as households, have faced higher costs of credit after the Bank of England’s long fight against inflation and economists will be on watch for any signs that it has hit the jobs market.
And there has been concern at the knock-on effect of higher rates on the wider economy, as well as the jobs market.
Last week. growth data showed that the UK was on course to avoid entering the technical definition of recession – defined as two consecutive quarters of lower gross domestic product – but flatlining growth left experts concerned about the UK's ability to grow.
Matthew Ryan, head of market strategy at global financial services firm Ebury, described this week's jobs and inflation releases as "key", adding: "Markets are expecting another significant fall in core inflation, to a still high 5.8% ... We remain confident that the UK economy will be able to eke out modest growth in the last quarter of the year."
With UK base rates now on hold at 5.25% after the run 14 consecutive hikes only ended in August, there are hopes that the next move will be a cut, although the BOE has signalled that the UK faces a period where rates will be “higher for longer”.
