The Week Ahead: UK faces inflation figures and rates decision post election

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Last week investors faced prepared themselves for volatility and uncertainty as the UK election delivered a hung parliament. Fund Strategy looks ahead to the key events on the agenda this week, both in the UK and further afield.

Tuesday 13 June

  • UK Consumer Price Index

The Office for National Statistics releases inflation figures for the month of May.

There have been signs that inflation does not appear to be rising as highly as expected with recent PMIs pointing to falling cost pressures, says Graham Spooner, investment research analyst at The Share Centre.

“By the end of this week, we will have a much better idea. Last month, UK inflation stood at 2.7 per cent, the highest level since 2013, but did the upwards trajectory continue into May?”

Wednesday 14 June

  • UK Labour market

In the three months to March, UK employment grew by 122,000 on the previous three month period. Unemployment fell to just 4.6 per cent, its lowest level since 1975.

But Spooner warns average wages without bonuses by just 2.1 per cent. “Unless wages see a pick-up, it seems likely they will be outstripped by inflation, meaning that real wages fell, with implications for the UK domestic economy.”

Thursday 15 June

  • Bank of England monetary policy meeting

Spooner says the prospects of an increase in UK interest rates in the next year or so seem to be diminishing, possibly even more so after the shock UK election last week that did not secure the Conservatives their desired majority.

“Some economists think UK inflation is close to peaking, the UK economy is not growing as fast as many forecast at the end of last year, and the yield on UK government bonds has fallen, with the yield on ten-year treasuries below 1 per cent for the first time since last autumn.”

Friday 16 June

  • US FOMC meeting

Although there is a good chance that US interest rates will be increased today, there are signs that the need for higher US rates is reducing, says Spooner.

“US inflation has not risen as much as many expected, while the US labour market is not creating jobs as rapidly as many forecasters were suggesting a few months ago.  Rates may well go up, but will the press conference that will follow the meeting hint that the Fed is becoming less hawkish?”

  • Tesco results

There is no escaping the continued fierce competition in the sector, especially from the discounters Aldi and Lidl, says Spooner. “At the full year results in April there were encouraging signs of growth in the UK but the market will be looking to see if that has continued, as well as an update on the extensive restructuring programme that the group is engaged in.

“Recent data has shown a sharp rise in overall supermarket sales with growth above inflation.”