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The Eurozone is struggling with a solution for the debt-crises while UK struggles with inflation

The Eurozone is struggling with a solution for the debt-crises while UK struggles with inflation

This week looks set to be dominated by reports and rumours, rather than economic data. The Guardian newspaper reported yesterday that France and Germany had agreed to boost the Euro Zone rescue fund to two trillion Euros. However, with German policy maker’s cueing up to deny that any immediate solution will be found at Sundays meeting of Euro zone states, this increase seems unlikely. Still, the report has led to the Euro rallying on the hope that a deal is now imminent.

Markets, for now, seem to have ignored Moody’s warning that it might put France’s AAA credit rating on review, and the fact that Spain has been this morning been downgraded by two notches. Furthermore, the German ZEW survey came in below market expectation again, with the future expectations component falling for the eighth month running.

UK inflation yesterday came in significantly higher than had been expected at 5.2%. Increasing utility bills and increased passenger transport fees provided the majority of this increase. The Bank of England has based the recent extension of Quantitative easing, on the fact that these inflation figures will drop back from here for the rest of the year and will drop significantly next year once the VAT increase is removed.

The Minutes of the October MPC Meeting should make interesting reading. Back in September, the Committee had voted 8-1 to keep asset purchases at £200 billion, with Posen voting for a £50 billion increase. Yet one month later, the Committee had voted to increase those purchases by £75 billion. Subsequent comments by Weale, Miles and Dale suggest that there was widespread support within the Committee for that move, which seems to have reflected the view that the international economy had weakened sharply over the course of the month. Ahead of the Minutes, it is unclear how much the deteriorating Eurozone situation weighed on the decision against a period of soft releases for UK data, which have since been partly reversed. The other question is which other forms of policy easing had been discussed.

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