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The slowdown in the pace of core price rises in the Eurozone in November is a good omen for the U.K.
Inflation expectations among households and businesses are falling, now that a recession is taking hold.
Manufacturers’ and retailers’ excess inventory reinforces the case for expecting goods inflation to drop.
We expect Ofgem to announce today that the default tariff cap will increase by 80% in October.
This will boost CPI inflation by 4pp, assuming the ONS treats the government's grant as a fiscal transfer.
Core goods inflation, however, is set to fall sharply this winter; manufacturers and retailers have excess stock.
Sterling has dropped, despite a sharp rise in Bank Rate expectations, because expected inflation has soared.
But the MPC will have flexibility if, as we expect, core inflation falls, boosting the expected real rate.
We expect the U.S. Fed to be more cautious than investors expect, easing some of the pressure on the MPC.
The U.K.'s relatively high rate of CPI inflation is largely due to government policies.
The energy price shock has been softened by grants, not tax cuts; VAT and NICs hikes have also played a role.
Higher core goods inflation than in the Eurozone is largely due to Brexit, not stronger underlying demand.
A jump in food prices was the main driver of July’s rise in CPI inflation, and the overshoot of the MPC’s forecast.
The core CPI continued to rise quickly, but recent falls in commodity prices point to slower increases ahead.
Lower petrol prices will mean CPI inflation undershoots the MPC’s forecast in August; a 25bp hike is on the table.
CPI inflation likely jumped to 9.9% in July, from 9.4% in June, led by rises in motor fuel and food CPI inflation.
Eurozone data and the BRC's figures both point to a renewed rise in core goods CPI inflation in July.
Surveys show services prices have continued to rise at an above-average rate, albeit less quickly than in Q2.
Dave Ramsden is the first MPC member to admit rates might need to be cut "quite quickly" in the medium term.
The cuts currently priced-in by markets from late H2 2023 aren't big enough to lower households' interest bill.
But CPI inflation won't be near the target until Q4 2023; pre-election fiscal stimulus will limit the scope for easing.
Households saved much less and borrowed more in Q2; real spending, therefore, likely was unchanged from Q1.
On paper, households have ample scope to reduce their saving rate further, but we see several constraints.
Some already have depleted savings, credit conditions are tightening, and deleveraging will be more attractive.
The BoE is considering active gilt sales that would result in a reduction in the APF of £50B-to-£100B in year one.
This implies active sales of £15B-to-£65B if they begin in Q4; we expect sales at the lower end of that range.
The CBI’s Distributive Trades Survey shows retailers’ stock levels are far too high; discounting will intensify.
Retail sales fell by 1.2% quarter-on-quarter in Q2, as households reduced big-ticket discretionary purchases.
Real household disposable income looks set to rise in Q3, thanks to government support measures.
But even if Ms. Truss pushes through her tax cuts, incomes will drop back in the winter, impeding sales.
The headline rate of CPI inflation topped the MPC forecast in June, due to higher motor fuel and food prices.
But the core rate fell, undershooting its forecast, as retailers struggled to pass on higher producer prices.
Core CPI inflation will fall sharply early next year, when recent falls in commodity prices will feed through.
We think that CPI inflation leapt to 9.4% in June, from 9.1% in May, exceeding the MPC’s 9.1% forecast.
But the upside surprise will be due to a massive rise in motor fuel prices, and another increase in food inflation.
Core inflation likely fell to 5.8%, from 5.9% in May; June 2021’s surge in goods prices likely wasn’t repeated.
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