Is UK inflation still falling?


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Investors will look at UK inflation data on Wednesday to determine how interest rates will move this year.

Economists polled by Reuters forecast annual inflation will slow to 3.1% in March, from 3.4% in February and the lowest since mid-2021. Analysts expect core inflation, which does not take into account energy and food prices, to slow to 4.3 percent from 4.5 percent the previous month.

That would leave UK inflation above the Bank of England’s 2% target, which could help persuade the central bank not to make big rate cuts this year.

Last week, traders pushed back their bets on when the BoE would first cut rates between June and August, after stronger-than-expected U.S. inflation for the third month in a row.

Labor market data released Tuesday will also be closely scrutinized to assess the strength of wage growth, key to domestic price pressures. Strong wage growth helped keep services inflation at a high level of 6.1 percent in February.

Economists polled by Reuters estimate that profit growth will slow to 5.5% in the quarter ended February, from 5.6% in the quarter ended January, offering some relief to policymakers. Valentina Romei

How fast is the Chinese economy growing?

China will report its first quarter economic results on Tuesday, with analysts looking for further signs of a rebound after the tepid growth seen since it abandoned its hardline zero Covid policy.

Economists expect gross domestic product to have grown 4.6% year-on-year in the first three months of 2024, according to a consensus estimate from a Reuters poll. This would be below the country’s target of around 5 percent for the year.

The news comes at an important time for Beijing after disappointing trade data showed a 7.5 percent year-on-year drop in exports in March, far worse than the 2.3 percent decline forecast by Reuters.

The country’s latest inflation data was also weaker than expected, with the consumer price index rising just 0.1 percent in March compared to the same month a year earlier. Weak CPI growth indicates weak domestic demand, a persistent problem for the country. However, some signs of a recovery in demand were observed, such as Chinese industrial activity which jumped in January and February.

Still, some doubt whether China will be able to meet its full-year growth target without a massive stimulus package from Beijing.

“Without bolder measures, we believe growth will fall short of the official GDP growth target,” UBS analysts wrote in a recent note, citing the lack of policy details and “positive surprises ” during last month’s annual National People’s Congress, when Beijing announced the year’s economic agenda.

Ratings agency Fitch lowered its outlook on China from “neutral” to “negative”, citing the country’s “real estate-dependent growth” as a source of heightened uncertainty in its rerating announcement.

Fitch said Beijing’s fiscal policy was “increasingly likely to play an important role in supporting growth in the coming years, which could keep debt on a steady upward trend.”

China’s Finance Ministry said the agency “failed to effectively anticipate the positive role of fiscal policies in promoting economic growth.” William Sandlund

Are American consumers still spending?

U.S. retail sales data for March, due Monday, will provide investors with fresh insight into the strength of the economy, following a sharp revision to interest rate expectations this year.

Three months of higher-than-expected inflation and a jobs market that shows little sign of weakening have already fueled concerns that the U.S. economy is too buoyant to allow many cuts in the near future.

Economists polled by Reuters expect Census Bureau figures to show that retail sales, which include spending on food and gasoline, rose 0.3 percent last month. This would mark a slowdown from the 0.6 percent monthly increase recorded in February.

The Federal Reserve will follow closely. Signs of weakness among consumers at the lower end of the income scale are starting to emerge, even though overall economic growth remains robust, according to James Knightley, ING’s chief international economist, who expects sales to rise in the retail of 0.3 percent.

Weekly credit card numbers have been “moderate,” loan default rates are rising, and data from San Francisco-based online restaurant reservation service OpenTable “suggests that dining out has been weak,” he said.

He added that consumers’ financial stress “is likely to worsen in the near term, with inflation outpacing income growth, particularly for those on Social Security.”

In contrast, Bank of America analysts expect a “strong” retail sales report for March, showing a 0.4 percent increase in overall retail sales and a 0.7 percent rise percent of the so-called core control group, which ignores spending on automobiles, gasoline, building materials and restaurants.

Despite this, BofA concludes that a recent set of weak credit and debit card data means their forecasts may be too optimistic. George Steer


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