Did UK inflation pick up again last month?

Did UK inflation pick up again in September?

The UK government bond market has been turbulent in recent weeks, after Westminster’s “mini” Budget on September 23 sparked a sharp sell-off that eased only when the Bank of England intervened days later.

Now that the BoE’s emergency bond-purchasing programme has ended, and chancellor Kwasi Kwarteng has been dismissed — with prime minister Liz Truss walking back a key part of her planned tax cuts at the same time — investors are likely to turn at least some of their attention to a more traditional driver of market moves: inflation data.

Ahead of the release of fresh figures on Wednesday, economists polled by Reuters expect the UK consumer price index to rise to 10 per cent for the year to September, from 9.9 per cent in August when it was just shy of a 40-year high.

Core inflation, which excludes food and energy, will also be closely watched by policymakers as a measure of the extent to which high energy prices are becoming entrenched in the economy.

Economists expect core inflation to have climbed to 6.4 per cent in September from 6.3 per cent in the previous month when it was the highest since 1992.

Economists expect inflation to remain high in the months ahead.

“We expect evidence of continued inflationary momentum, especially given the weakness of sterling over September,” said Ellie Henderson, economist at Investec. This is because a weak pound pushes up imported costs, particularly food, which tends to react quickly to changes in the exchange rate.

The government’s cap on household energy bills for the next two years is expected to keep a lid on inflation over the coming months. However, price pressures are expected to remain high for longer because of the loose fiscal policy.

Last week the International Monetary Fund said high levels of inflation would persist longer in Britain than in almost all other advanced economies. The fund forecast UK inflation would remain high at 6.3 per cent by the end of 2023, the most elevated of any other G7 country. Valentina Romei

Will Turkey really cut interest rates again?

Many central banks across the world have been aggressively raising interest rates this year in an effort to tackle inflation. Turkey, never afraid to be an outlier, has been doing the opposite. To the astonishment of economists, the Turkish central bank is expected to cut borrowing costs for the third month running on Thursday despite official inflation that topped 83 per cent in September.

President Recep Tayyip Erdoğan, infamous for rejecting the established economic principle that raising interest rates curbs inflation, has said repeatedly that he wants the bank’s benchmark funding rate to come down to single digits by the end of the year. Speaking last week, he said: “As long as this brother of yours is in this position, interest rates will continue to come down with every passing day, week and month.”

Analysts believe the president, who in effect controls the central bank, should be taken at his word. “We expect another 100 basis point rate cut,” said Enver Erkan, chief economist at Tera Securities in Istanbul — a move that would bring the policy rate down from 12 per cent to 11 per cent. He expects the bank to reach Erdoğan’s single-digit target by the end of the year.

Like other analysts, Erkan warned the policy is not sustainable. It risks putting renewed pressure on the lira, which is down almost 30 per cent against the dollar this year, and stoking inflation. But Erdoğan is focused on growth as he gears up for elections scheduled for June 2023. Erkan said: “Despite the risks and the lack of sustainability, we expect these kinds of policies to continue.” Laura Pitel

Did China’s GDP rebound in the third quarter?

China’s gross domestic product grew just 0.4 per cent in the second quarter of the year, surprising analysts to the downside, as the full effects of the country’s economically-throttling zero-Covid policy exceeded expectations.

Since then, a number of global banks, including UBS, ANZ, HSBC, Barclays and Nomura, have all downgraded their full-year forecasts for the world’s second-largest economy. The World Bank, meanwhile, now predicts growth in the rest of Asia will outpace that of China for the first time since 1990.

The medium-term pressures weighing on China’s economy — weak consumer demand and uncertain business prospects in the face of repeated lockdowns — have not eased significantly over the past few months. A closely watched gauge of manufacturing sector activity, meanwhile, suggested a further contraction in activity in September.

While consensus forecasts predict a rebound in GDP, with growth at 3.4 per cent for the third quarter, analysts highlight risks posed by resurgent lockdowns over the past few weeks.

“We expect September activity data to either moderate or remain broadly flat,” analysts at Barclays said in a research note, adding that their forecast was for growth of 2.5 per cent. “Specifically, we expect retail sales growth to slow to 2.5 per cent y/y in September as intensified Covid lockdowns damped distance-sensitive consumption (eg, catering) and auto sales volume moderated.” William Langley