Week Ahead Preview: Heavy Macro Week Will Decide Fate of December Rate Cut

This week, inflation data, borrowing figures, and more MPC speeches will set the tone for whether a December rate cut is still on the cards.

Pricing in Higher Inflation

Most of this week's focus will be on October's inflation data. Consensus estimates see headline Consumer Price Inflation (CPI) rising back above the 2% mark, to 2.2% — in line with our model — mostly from higher energy prices. However, rebounding services inflation won't help the case for a December rate cut, as analysts expect a return to the 5% mark, while core CPI remains sticky at 3.2%. The odds of a December rate cut currently sit at a measly 15%.

At the same, we encourage investors to keep an eye out for Producer Price Inflation (PPI) as well — more specifically, core PPI output, which has seen 6 consecutive months of increases. The metric is usually a leading indicator for core CPI and is often overlooked by markets on the day. Hence, another uptick may result in sticky future core inflation, which could serve as a stumbling block for inflation to return to the Bank of England's (BoE) 2% target.

The inflation saga won't end on Wednesday, either, as borrowing figures are set to be released the next morning. Another rise in public sector net borrowing ex. banks is anticipated, with markets seeing a c.4% increase to £16.1bn in October, from £15.5bn last year. If the figures do come in higher than estimates, however, this would undoubtedly fuel inflation fears further, as higher borrowing would spark longer-term inflation fears.

Tip: Higher borrowing fuels inflation through higher government spending. This raises demand, which can lead to higher prices, especially if output and productivity can't match demand.

Retail's Winter Chill

There will also be a data bonanza on Friday, with consumer confidence, retail sales, and flash Purchasing Managers Index (PMI) data. After a gloomy Budget that tanked consumer confidence to a 7-month low, confidence isn't expected to bounce back. This is likely to be reflected in the retail sales data as well, with month-on-month (M/M) volumes forecasted to drop by 0.3% — marking a poor start to the all-important golden quarter for retailers.

Tip: Those invested in consumer discretionary stocks may want to pay close attention to the Major Purchases metric in the consumer confidence survey. An increase from last month's -23 could spell a better outlook for retail sales.

Flash PMI figures will also be on the cards. After Britain's Gross Domestic Product (GDP) disappointed last week with negative growth in September (-0.1%), all eyes will be on what November's composite PMI is, as the figure is often a leading indicator for GDP growth. Expectations are for economic growth to have stayed relatively the same from October (51.8 vs 51.8), with the US's numbers also likely to reflect the same trend (54.3 vs 54.1).

Tip: Investors particular about the outlook for services CPI may want to read between the lines of the flash PMI report, as it has correctly predicted the direction of services inflation in every month since the start of the year.

To the end the week, the US Federal Reserve will be paying close attention to the Michigan consumer sentiment survey's final results. Even though a move up to 73.0 is projected, inflation expectations will arguably be more important. This is because US inflation has creeped up since the Fed began its rate-cutting cycle. Therefore, any indications of sticky inflation could undermine the odds of another cut at the Fed's next meeting.

MPC Weighs Up December Rate Cut

A total of six members from the Monetary Policy Committee (MPC) will be speaking this week. Megan Greene will kick it all off on Monday evening at the London School of Economics, where we will be in attendance. Although Greene tilts hawkish, she has previously expressed her openness to loosen her stance slightly if GDP weakens — which it has. As such, we will be quizzing her on this and her view of demand in relation to output at the Q&A session.

The quartet of Andrew Bailey, Clare Lombardelli, Catherine Mann, and Alan Taylor will follow up the next day, as they speak to the Treasury Select Committee on November's monetary policy report. This will be Alan Taylor's first public comments since joining the MPC, so all ears will be on his words to establish his voting intentions. Meanwhile, swing voters Clare Lombardelli and the Governor himself, Andrew Bailey will also attract plenty of ears.

Dave Ramsden will also be speaking on Wednesday. Given his dovish leanings and the odds of a rate cut next month, a close ear will be worth keeping on his commentary. Any hawkish tilt could all but cement a hold from the BoE, although we think his stance will be dependent on the inflation data that morning. Catherine Mann is due on Thursday as well. But as she's already made her hawkish stance clear, she's unlikely to move from her previous speeches.

All in all, this will be a crucial week for what happens in December. Although there will be more data to come before the MPC's next meeting, the given rise in headline inflation next month is unlikely to change members' stances, unless this week's data comes in weaker than forecast. In such an event, this could give inflation more headroom with its next print, as there will be a higher likelihood of next month's figures coming in below the BoE's estimates.

Data Schedule and Consensus Estimates

Day	Event	Consensus	Previous
MON	BoE Megan Greene Speech
TUE	BoE Andrew Bailey, Clare Lombardelli, Catherine Mann, Alan Taylor Speech
WED	UK Headline CPI (Y/Y)	2.2%	1.7%
WED	UK Core CPI (Y/Y)	3.2%	3.2%
WED	UK Services CPI (Y/Y)	5.0%	4.9%
WED	UK Headline CPI (M/M)	0.4%	0.0%
WED	UK Core CPI (M/M)	0.4%	0.1%
WED	UK PPI Core Output (Y/Y)	1.3%	1.4%
WED	BoE Dave Ramsden Speech
THU	UK Public Sector Net Borrowing	£15.9bn	£14.5bn
THU	UK Public Sector Net Borrowing ex. Banks	£12.3bn	£15.5bn
THU	BoE Catherine Mann Speech
FRI	UK GfK NIQ Consumer Confidence	-23	-21
FRI	UK Retail Sales Volumes (M/M)	-0.3%	0.3%
FRI	UK Core Retail Sales Volumes (M/M)	-0.4%	0.3%
FRI	UK Retail Sales Volumes (Y/Y)	3.4%	3.9%
FRI	UK Core Retail Sales Volumes (Y/Y)	3.3%	4.0%
FRI	UK Composite Flash PMI	51.8	51.8
FRI	UK Services Flash PMI	52.0	52.0
FRI	UK Manufacturing Flash PMI	49.9	49.9
FRI	US Composite Flash PMI	54.3	54.1
FRI	US Services Flash PMI	55.3	55.0
FRI	US Manufacturing Flash PMI	48.8	48.5
FRI	US Michigan Consumer Sentiment Final	73.5	70.5

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*These forecasts represent opinions and analyses based on available data but may prove incorrect. This content is for informational purposes only — please consult a qualified financial advisor for personalised investment advice tailored to your specific circumstances.