This week, investors digested fresh rounds of corporate earnings and the FTSE 100 index maintained its positive momentum throughout the week, after a softer-than-expected CPI report.
Wednesday’s (19th July 2023) UK CPI report for June came in lower than expected at 7.9% year on year, and the fall was mainly due to a negative contribution from petrol and other fuels. We have long argued that UK inflation will fall sharply this year simply due to what is known as base effects which are now coming to fruition. After Ofgem’s consumer energy price cap reduction this month, which mirrors the declines in wholesale gas and electricity prices, inflation is expected to continue to fall in the coming months. CPI could potentially be below the BoE’s 2% target by the end of the year.
Also in the UK this week, data showed retail sales rose by 0.7% from the previous month in June 2023, strongly beating market expectations of 0.5%. This was the third straight month of growth in retail trade and the steepest pace in the sequence, boosted by summer sales and the impact of good weather. Despite the fall in consumer confidence also reported, the latest sales data highlighted the resilience of consumers in the face of higher interest rates. Investors are divided as to whether UK policymakers will opt for a smaller 25 bps or 50bps hike at the next meeting on the 3rd of August.