Drop in headline inflation provides positive momentum for markets

This week David Cameron’s return from the political wilderness caught everyone by surprise. Cameron is the first former prime minister to return to government since 1970 as he takes up the role of Foreign Secretary. His appointment dominated the headlines and successfully attracted attention away from Suella Braverman’s acrimonious departure from government. But Cameron’s return doesn’t do much for the government in the longer term. It remains far behind in the polls and the recent King’s Speech had little to allow it to regain political momentum.

The positive reaction to this week’s inflation figures suggests markets are also being distracted by short-term news. Despite the big drop, UK CPI is only 0.3% below where the market had expected it to land as falling domestic energy bills take effect and, in line with the recent trend, core inflation remains sticky. The decline is welcome but does little to change the outlook. Very low unemployment and strong wage inflation means the Bank of England may be convinced to keep rates high for a while. Meanwhile, falling retail sales suggests the risk of recession is still live.

For the following stories, please click on this link*

• Inflation: Markets rise as inflation falls faster than forecast
• China: Retail spending rises, but property still in the deep freeze
• Equities: Luxury goods feeling the chill of lower demand

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