Market report: UK inflation runs hotter, and eyes turn to Fed decision
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Investors are eyeing up another expected interest rate cut from the Federal Reserve later but may have to get used to the idea of interest rates descending in more spaced-out steps given the stubbornness of inflation. The FTSE 100 is set for a cautious open as inflation takes on a fresh unruly streak, but there is some relief that the inflation snapshot didn’t come in even higher.
The UK’s CPI data demonstrates why policymakers are set to stay hesitant about easing borrowing costs rapidly. Wariness is creeping into the central bank playground given that inflation is back on the see-saw, continuing to rise, after dipping below target in September. Even though the UK economy is also on the slide, with a back-to-back contraction in October and November, policymakers aren’t likely to cut rates tomorrow. Prices of shopping basket favourites are swinging up again and the cost of second-hand cars and fuel has bounced higher. The concern is that this roundabout of price increases might intensify with wage growth also jumping, giving people more money in their pockets but also potentially forcing firms to pass on the higher costs to consumers. There’s the risk that prices could climb higher as employers try and mitigate the effect of increases in National Insurance contributions and the minimum wage next year. But on the other hand, it could prompt slower wage growth further down the line. We may be off the rollercoaster ride, but inflation is still behaving like a stubborn toddler, resisting attempts to coax it down from uncomfortable levels.
With inflation not bounding up in quite such big steps in the United States, though still trending higher, the Fed is still set to cut rates later by another 0.25%. But there’s an expectation that the central bank will go slower next year, given the strength of the US economy. The uncertainty unleashed by Trump’s win and the potential inflationary effects of his planned tariffs is part of the reason for caution. So, comments from chair Jerome Powell will be watched closely later for clues as to the pace of further monetary easing, although guidance is likely to be limited given the unpredictability Donald Trump’s policy making. Ahead of the meeting there’s a holding pattern emerging with the dollar steady, although futures markets indicate a positive open on Wall Street.
Chinese stocks have risen as hopes stay high for extra stimulus for the struggling economy. The enthusiasm has been stoked after President Xi Jinping told officials to “scientifically” plan economic and social development work for 2025 and there are hopes that significant steps may be taken early in 2025. The expectation that economic moves to boost growth in China will increase appetite for energy, which is partly why oil prices have lifted slightly. Brent Crude is hovering around $73 a barrel, breaking a two-day losing streak. Industry data from API, showing oil stocks in the United States fell by more than expected last week, is also helping shore up prices, indicating higher demand in the world’s largest economy.’’
