UK: Economic reports will be in the focus this week - BBH

Research Team at BBH, suggests that three UK economic reports that will be the focus for investors in this week:  Inflation, employment, and retail sales. 

Key Quotes

“The structure of the UK economy means that the decline in sterling will boost consumer prices, which had already begun recovering from the deflation scare.  UK consumer prices were flat in 2015 (December CPI was zero year-over-year).  It stood at 0.5% in June and rose to 0.6% in July.  It is expected to rise to 0.7% in August.  The core rate is essentially flat.  It was 1.4% at the end of last year, and in August, it is expected to have edged to it from 1.3% in July.

Separately, the drop in sterling will also lift producer prices.  This may also spur some businesses to lift selling prices or face margin compression.  It may take some time for sterling's impact to work its way through.  Although it appears to be consolidating its decline in the $1.30-1.35 range, the duration of some business contracts argues in favor of a prolonged process. 

UK consumer prices are rising while wage growth is slowing.  The August jobs report is unlikely to show a major change in conditions.  However, average weekly earnings are expected to be up 2.1% in the three-month period through July from a year ago.  This is down from 2.4% in June, after having peaked last August at 3.2%. 

Real wage growth will slow in the UK and this may impact consumption.  Retail sales leaped 1.4% in July, defying conventional wisdom.  This pace cannot be sustained.  The median forecast is for a 0.4% decline in August (0.7% excluding petrol).  The risk may be on the upside as anecdotal reports suggest elevated tourism, drawn, yes, to the weak pound. 

Tourists from EMU and Japan have not seen sterling this soft for three or four years.  Chinese shoppers see the most favorable exchange rate in around a quarter of a century.  Americans see the lowest exchange rate for sterling in more than 30 years.”