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Monday Morning Update

Renewal of inflation taming plan by UK government, markets weigh on release of Canadian inflation figures tomorrow, and looking at the week ahead.

UK Government Renews Plans to Tame Inflation

With inflation remaining stubbornly high, the UK government is launching an offensive on trying to tame it. This week will see Jeremy Hunt the Chancellor of the Exchequer, meet regulators across various industries to try to clamp down on what has been referred to as “greedflation” – which has seen corporate profits soar across some sectors as UK households grapple with the rising cost of living. As such, it is understood that Hunt may seek to try to implement policies which keep a check on corporate profits.

During an interview on Sunday, Rishi Sunak also indicated that he could reject recommendations by pay review bodies to raise wages.  This month’s wage print again highlighted the disparity between private sector and public sector pay growth, as private sector wages excluding bonuses rose 7.6% against the public sector’s 5.6%.

Headlines focusing on the Government’s renewed attack on inflation follows last Wednesday’s hotter-than-expected inflation print which saw Headline inflation remain at 8.7% over May on an annualized basis. Despite energy and food prices subsiding, this headline figure came in 30bps above expectation. Meanwhile, core inflation appreciated to 7.1% as it similarly beat market expectations by 30bps while reaching its highest level since 1992.

Markets Weigh on Tomorrow’s Canadian Inflation Figures

Tomorrow will see the release of Canadian inflation figures as the markets weigh on the Bank of Canada’s hiking cycle. Last month the Bank of Canada raised rates by 25bps after leaving rates unchanged over the March and April policy meeting. Their decision in March marked the first major central bank in the West to cease further monetary tightening, as Ottawa cited inflation falling in line with expectation as a key factor behind the decision. Moreover, given concerns surrounding growth house price inflation, the central bank has remained concerned over the implications of an overly restrictive monetary policy given its implication on mortgages and the property market, which remains historically tight. Nevertheless, the annual rate of inflation rose 0.1 percentage points between March and April, bucking the trend of falling inflation seen since the recent 8.9% peak in June 2022. As such, markets will be paying particular attention to this print released at 13:30 given its implication on the BoC’s projected monetary cycle.

Looking Ahead

This week starts a little light on the data front, though markets will be keeping a close eye on President Lagarde who is speaking at 18:30 this evening. Tomorrow will see the release of the BRC’s shop price index which saw food price inflation rise to 15.7% in April, its highest on record ahead of the US’ Durable Goods Orders where the market is predicting a 1% contraction over May. On Thursday, attention will turn to Eurozone consumer confidence at 10:00 and German inflation data 30 minutes later. Wednesday afternoon will see the release


of the latest estimate for US Q1 GDP figures where the general market consensus is projecting a 1.3% print (annualised). Friday will see the equivalent release in the UK, where the markets are projecting a quarter-on-quarter print of 0.1% at 07:00. This will be released simultaneously to German retail sales which are expected to see a 6.7% contraction over May (annualised), ahead of Eurozone inflation and unemployment data at 10:00.

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