Last week we argued that this week's heavy dataflow would be dominated by inflation news. In the event, despite upside surprises from both UK and US data, investors seem more focused on real growth concerns.
The tone was set by the Bank of England's latest Inflation Report , which could charitably be described as a capitulation to common sense. Despite a very sharp upward revision to the central CPI inflation forecast, and an upside skew, the headlines were grabbed by the tacit admission that a recession is on the cards. Gone were the tortured explanations of why the housing market correction may not impact on consumer spending and the wider economy as before. Indeed, we would argue that the MPC actually went further than most outside commentators in actually making a recession - which is almost a certainty if annual growth is zero - its central projection. In the attached presentation, we highlight the MPC's latest projections with our own from June. We have argued for some time now that the next move from the MPC would be another cut, and that it could come as soon as November as by that time inflation should have peaked and quarterly GDP growth may have slipped below the zero line. The Inflation Report only served to reinforce those views.
We also attach a presentation on the prospects for the dollar. The section below summarises the key points. If you would like any further information about this or any other Fathom research, please contact us at enquiries@fathom-consulting.com or on 0207 796 9561. |
