ACM Update 23-10-23

Written by: David Comber
Date posted: 23-10-23

UK inflation remained stable in September as fuel prices continued to impact the cost of living. Many major food items did start to fall though. With the latest Bank of England rate announcement ten days away, a further pause in the rate hike cycle looks likely.

This week though we have the latest ECB rate announcement from Christine Lagarde & Co, as well as more UK data and a speech from Fed Chairman Jerome Powell.

Plenty of UK data releases last week, with MPC member speeches, inflation, average earnings, government borrowing, but NOT unemployment data. The UK jobs figures were pulled at the last minute and rearranged for release a week later, citing the delay was “because we want to be confident in the numbers we put out”. Ironically, the reason provided dented confidence generally in ONS (Office for National Statistics) figures.

In figures that were released, inflation was the big one with the CPI figure remaining at 6.7% as with last month. The price of many food staples fell, but petrol rose by over 5p a litre in September. PM Sunak commented that halving inflation to 5.3% by the end of the year remains his “number one priority”. We are likely to see the Bank of England hold rates again on 2nd November, but as Andrew Bailey has recently informed us, the decision could be tight.

Two of his fellow MPC members (Pill & Dhingra) held speeches last week. Chief Economist Huw Pill used his to stress the importance of not declaring victory over inflation too soon, and that there was still “some work to do”. Meanwhile Swati Dhingra maintained her stance that slower rate hikes would have been better for the economy, stating the labour market in the UK is “really loosening”. Indeed, average earnings data showed that pay growth rose above inflation for the first time in almost two years, with growth of 7.8% for the three months of June-August.

Other UK data continues to be blamed on the weather meanwhile. Retail sales figures for September fell by -0.9% as unseasonably warm weather apparently prevented people spending on autumnal clothing. Just a reminder that UK GDP dropped in July as there was too much rain. You cant win! Government borrowing in September was £14.3bn versus £20.5bn expected, but still remains close to 100% of GDP.

Sterling remained relatively flat versus the Dollar during the week, moving in a roughly 1% range for the week as shown below:


Over in the US meanwhile, retail sales data continues to perform well with a jump of 0.7% from August to September. This marks six months in a row of increases. However, Philadelphia Fed President Patrick Harker remains concerned about how small business will cope over the next 12 months with higher interest rates.

Fed Chairman Jerome Powell suggested that the committee are inclined to hold interest rates again at their next meeting on 1st November. He is still leaving the door open for a future hike if there are further signs of strong economic growth. Elsewhere, the third failed vote for Jim Jordan meant Republicans voted to revoke his nomination for House Speaker. The debacle rolls on into another week, and another week closer to the latest debt ceiling on 18th November.

In the Eurozone, very little to report, with all eyes on the ECB meeting this Thursday. ZEW Economic sentiment figures released for the bloc as a whole showed a figure above zero (optimistic) for the first time since April. The equivalent figure for the German economy specifically was its best since April also, still just under zero though.

Sterling drifted slightly lower during the week due to the weak UK data, its lowest since May in fact versus the single currency. Recent movements are below:


Elsewhere, the Reserve Bank of Australia minutes showed the committee considered raising rates in October before opting to hold. Meanwhile the new RBA Governor, Michele Bullock, is concerned that continued geopolitical shocks such as the wars in Ukraine & Israel, will cause inflation to become entrenched. Canadian inflation unexpectedly fell to 3.8% in September, reducing the likelihood of another rate hike this week (Wednesday).

Monday – New Zealand Bank Holiday

Tuesday – UK Unemployment & Claimant Count (07:00 UK time), Manufacturing & Services PMI EU/UK/US (08:15-14:45), RBA Governor Bullock speech (09:00), ECB Governor Lagarde speech (15:00)

Wednesday – Australian CPI (01:30), Bank of Canada rate announcement (15:00), Fed Chair Powell speech (21:45)

Thursday – ECB rate announcement (13:15), US Unemployment Claims (13:30), ECB Press Conference (13:45)

Friday – Spanish Flash GDP (08:00), University of Michigan Consumer Sentiment (15:00)

After a narrower week of movement on GBP-USD, geopolitical events are likely to continue to drive movements on the pair this week. Movements in oil prices are likely to be a factor also.

For those selling Dollars, we are still witnessing near the best prices in seven months as things stand. The coming weeks are likely to remain volatile with interest rate announcements on both sides of the Altantic next week. The Federal Reserve first up on 1st November and the Bank of England on 2nd November. Still an excellent opportunity for Dollar sellers.

For now, the ECB meeting on Thursday will be the main event, aside from Chairman Powell’s speech of Wednesday evening. Christine Lagarde and the rest of the committee are likely to move for a further hold in their rate hike cycle, but any change in their rhetoric in the following press conference will be closely monitored.

As always, make sure to reach out to the team for any further information and requirements.