This week neatly illustrates the problem facing the Bank of England. Inflation remains stubbornly high and wage growth continues at near record levels, but consumer confidence and spending have contracted sharply. It is usually good to treat a single month’s data with a healthy dose of scepticism, however, the monthly CPI reading is now stuck just under 7% where it has been since July. High interest rates are now having the restrictive effects intended on consumer activity, but inflation seems to have stopped reacting to the downward pressure. The bank’s choice is stark; is the priority inflation or economic growth?
In the US, the Fed has indicated that it will leave rates on hold at its next meeting, but US consumption is speeding up rather than slowing and markets have concluded the higher for longer doesn’t rule out another hike later this year. Bond markets have looked at the data and concluded that tackling inflation is and will remain the priority of central banks and this has dragged government bonds down again.
For the following stories, please click on this link*
- Global: Inflation and strong retail sales cause bonds to slide
- China: GDP growth bounces back
- Equities: US tech stocks face scrutiny as Q3 earnings season begins
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