UK inflation likely to drop below 1%

The Bank of England Governor, Mark Carney, spoke of increasing external risks menacing the UK at yesterday’s inflation report hearing where he mentioned “weakening global economies and political tensions weigh on the outlook for UK recovery”. Furthermore, BoE policy makers warned that UK inflation is likely to slide below 1% which runs the risk of deflationary issues arising. Carney stated that there will be a delay to a bank rate hike as external economic issues could have a detrimental effect on the UK, in particular, issues regarding the UK's export market(s) as Europe amounts to 60% of that sector and a drop-off will have a significant impact on the British economy. The pound suffered a further loss of 0.3% against the dollar when this news was released. Other than an update on inflation, it was a very quiet day on the economic calendar as there is nothing else to report. Today brings GDP figures which are expected to read at 3%.

Consumer spending really helped German GDP figures avoid a recession as the sector expanded by 0.1% in the three months from July to September. Increased exports also provided a boost, while falling investment acted as a drag on economic recover. The eurozone may be stuck in persistent stagnation, while insufficient policy stimulus could be undermining potential growth in the area, the Organisation for Economic Co-operation and Development said yesterday. Ironically, the pound still made some ground against the euro yesterday considering there was weak data released from both economies and the pairing peaked to a daily high of 1.2629 IB.

Across the Atlantic, there were mixed signals yesterday from the US calendar. Starting with the positive news, US GDP grew by 3.9% in the third quarter; up from an earlier estimate of 3.3%.The US economy had expanded at a 4.6% rate in the second quarter. It has now experienced the two strongest back-to-back quarters of growth since the second half of 2003. However, for the month of November, consumer confidence took a sharp decline to 88.7 from a forecast 96.0. This release caused some dollar weakness in afternoon trade and Sterling took a bounce back to close the London session at 1.5711. Today brings a very busy day for the US ahead of national holiday(s) and Durable Goods Orders will be the highlight of the day forecast to read at 0.3%.

Retail sales in Canada took a surprising increase of 0.3% to read at 0.8% for the month of September. GBP/CAD is currently trading at 1.7690 IB.