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GDP Disappoints as Attitudes to Inflation Falls under the Microscope

Pressure continues to mount on the government as headlines now suggest that several gatherings allegedly took place at 10 Downing Street during lockdown last December. This morning, the UK monthly Growth Domestic Product (GDP) for October was released, giving a disappointing growth of 0.1% to kickstart Q4 – well below the forecast of 0.4%. This means economic activity is still down by 0.5% when COVID-19 started in Feb 2020. The introduction of Plan B restrictions may also impact Q4’s growth.

There is no major data set to release for today, but the latest Bank of England’s (BoE) inflation attitudes survey is due. Central bankers are also forecasting inflation to fall sharply through 2H2022. The survey will be watched on whether expectations of future price increases will remain well-anchored. A few BoE members recently stated that wage inflation may be more embedded which could impact the wider picture.

Inflation is Set to Top 1982 Highs

The US Dollar made gains yesterday as the markets reconsider their optimism based on headlines that a booster jab will provide significant protection against Omicron. Meanwhile, the weekly jobless claims data was closely watched due to inconsistencies with the labour-based data. The jobless claims data suggested that the number of Americans applying for unemployment benefits plunged last week to the lowest level in 52 years.

Looking to the day ahead, the focus will be on the inflationary data as November CPI numbers are released. Economists expect rising gasoline, housing, and second-hand car prices to be the big movers, and the yearly figure push toward 7% – the highest reading since 1982. The inflation reading may provide the Federal Open Market Committee (FOMC) further ammunition to speed up tapering, moving them closer to a rate hike.

Key Central Bankers are Set to Speak, will their Inflation Stance Change? 

The Euro moved lower against the US Dollar as the markets tapered their risk appetite. The single currency remains fairly anchored as the central bank lags in its counterparts in time for a change in monetary policy. European Central Bank (ECB) members also stated that they believe that inflation is transitory, which will be closely watched for changes in stance in next week’s meeting. The market will focus on the ECB speakers this morning, including Lagarde, Weidmann, and Villeroy.

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