With the Quarterly Inflation Report due to be released later this morning, a raft of data released yesterday raised concerns about the outlook for the economy going forward and could well put the issue of fresh quantitative easing from the Bank of England over the coming months back on the table. The RICS house price index showed house prices falling last month at their sharpest pace in a year-and-a-half as a lack of mortgage finance and an uncertain economic outlook put off potential buyers. The index was below even the most pessimistic forecasts, with new buyer enquiries dropping for the fifth consecutive month.
The BRC retail sales report for October was better than last month, showing sales up 0.8% in year-on-year terms. However, it still indicates sluggish High Street activity going into the year end. September’s trade report also disappointed, further confirming that the traded sector is unlikely to make up for a fall off in domestic demand as fiscal tightening really starts to kick in. Manufacturing output also grew at its weakest rate since April.
With the Euro finding a little support yesterday following an uncertain few days, today also sees the release of a number of industrial production reports for September from Eurozone member countries, including France and Italy, with markets looking to the data for some direction ahead of Friday’s preliminary GDP reports.
Sterling, meanwhile, has lost a little ground against the Dollar in the aftermath of last week’s QE2 announcement from the Fed, on the back of a general dip in risk appetite. The Inflation report this morning could be one of the bigger data releases it has had to face in recent weeks. Given that, markets had appeared to have discounted the possibility of further QE from the BoE, it will be interesting to see what the BoE makes of the releases yesterday in determining whether these are a minor slip in a run of generally positive news since the summer, or an indication of a larger change in fortunes for the domestic economy.