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The Bank of England could be suffering from yet another headache as falling shop prices reinforce deflationary pressures in the UK.

The BRC (British Retail Consortium) reported that shop prices in September were 1.9% lower than 12 months earlier – food prices also dropped by 0.5%. Within the food retail market there is still downhill compression on prices and this is expected to carry on as high street chains fight for a wallet share over the festive period. Non-food prices also fell more quickly, down by 2.9% in September. Good news for your high street bargains, bad news for Bank of England Governor, Mark Carney.

As commodity prices saw some positive gains yesterday, naturally, commodity currencies saw a knock-on effect and picked up some strength. This created less daily demand for the USD and as a result, the Pound was able to pick up some much needed momentum versus the Greenback. Yesterday wasn’t the greatest day for those Stateside, particularly for those who are eagerly awaiting the Fed’s raising of the interest rate. Whilst the US are widely expected to move first, many investment banks are shifting their forecasts into 2016, completely ruling out a possible hike in October’s meeting.

This morning, the Euro opens weaker as German economic data continues to disappoint. Yesterday, optimism was dashed as factory orders recorded a -1.8% contraction in August; this came versus a 0.5% forecast. Again, to maintain the negative tone – German Industrial Production figures were published to show a -1.2% decline for August. As the VW scandal continues to unfold, the markets wait, wondering how big an impact this could have on German manufacturing and exports…Much bigger than that though, the Euro area is beginning to panic that the slowdown in Chinese markets is having a detrimental effect on the recovery of the Eurozone.

Today we look to the UK GDP estimates at 3pm. Even though the Bank of England are one of the Central Banks who are slightly more hawkish than others – today could spring a surprise ahead of Thursday’s Bank of England meeting. Similarly to the US, the forecast for the rate hike is being pushed back significantly but in contrast, UK growth forecasts are expected to be revised down which could negatively impact the release today.

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