Figures released this morning showed that the UK economy grew by 0.1% in August. This was better than the expected 0.1% fall, although growth slowed from July’s 0.4% increase. Industrial production rose by 0.8%, while manufacturing output increased by 1.2%. Both had been expected to fall slightly. The results offer some reassurance about the UK economy ahead of the Budget, although Sterling’s initial reaction has been limited.
Over in the US, yesterday’s inflation figures came in higher than expected. Headline inflation rose from 3.4% to 3.7%, above the 3.6% forecast. Core inflation, which excludes food and energy, increased to 2.6% against expectations of 2.5%. Higher petrol prices contributed heavily to the increase, but prices also rose across other goods and services. The Dollar initially strengthened as markets increased their expectations of another Federal Reserve interest rate rise.
However, comments from Fed officials showed that a rate rise in October remains uncertain. Michelle Bowman said there was time to assess economic conditions before taking further action. Thomas Barkin said inflation was higher than he had hoped, but did not say whether he supported an October increase. He also said today’s producer price figures would help him assess the inflation outlook.
Today brings US producer price inflation, retail sales and weekly jobless claims at 1.30pm UK time. Producer prices, which measure the prices businesses receive for their goods and services, are expected to rise by 0.6% over the month. Retail sales are forecast to increase by 0.3%, while the number of new claims for unemployment benefits is expected to rise slightly to 199,000 from 197,000.
Higher than expected inflation and stronger spending could support the Dollar by increasing expectations of further rate rises. Weaker spending or a larger increase in unemployment claims could make the Fed more cautious and weaken the Dollar. For clients buying Dollars with Pounds or Euros, a stronger Dollar would make those payments more expensive.