For the first time since September, UK inflation has risen. Headline CPI came in for the month of December at 3.4%, with an increase in tobacco prices accounting for a large portion of the latest rise, alongside rising food costs. Core inflation, meanwhile, stood unchanged at 3.2%. The latest figures received comment from Chancellor Rachel Reeves, who made lowering the cost of living one of her pledges for this year. Reeves suggested that her budget had potentially disinflationary effects in the form of curbing bills for UK citizens but that there was more to do.
The data follows that on Tuesday, which painted a cooling picture of the UK labour market. Unemployment stood at 5.1% in the three months from September to November, suggesting employers remain in a phase of subdued hiring. Wage growth is also losing momentum. Private sector pay (the measure most closely watched by the Bank of England) slowed to 3.6% from 3.9% over the same period, marking its weakest pace in five years. Elevated wage growth has long been a concern for policymakers given its tendency to outstrip inflation, but that pressure now appears to be easing. While financial markets are largely pricing in a shift toward looser monetary policy as the year draws on, economists caution against expecting an immediate move at the Bank’s next meeting. Inflation remains above the Bank’s 2% target, and policymakers have recently signalled a cautious approach, indicating that any rate cuts are likely to proceed at a slower pace than markets anticipate.
This week, President Trump has certainly given traders plenty to digest with a series of comments on Truth Social and elsewhere. Ahead of meetings with global leaders on Wednesday, Trump delivered a speech to the American public in which he declared that the US would take Greenland “one way or the other,” adding on social media that control of Greenland would be imperative for both national and global security. Global leaders have continued to be aghast. Belgium’s prime minister has said that when he meets Trump at Davos he will stress that the president is crossing red lines, while Greenland’s prime minister has urged citizens to prepare for the possibility of an invasion. Against this backdrop, both European and U.S. investors approached Tuesday’s session with caution, with the latest developments prompting some traders to lock in profits and causing a sell off in markets.
Over in Japan, Prime Minister Takaichi has called a snap election in February and plans to dissolve parliament this coming Friday. The aim is for the PM to prove that Japanese citizens actively desire her administration in power.
Still to come this week we have Japan’s balance of trade and inflation rate, U.S. GDP and PCE and UK retail sales.
Nicola Tune, Portfolio Specialist
