Inflation jumps to 1.6% closing in on Bank of England’s 2% target

January 23, 2017

Donald Trump’s inauguration dominated headlines throughout last week, although the event passed relatively smoothly. As expected protest marches were widespread across the US and the world. While the new President did not give away any new policies that might unnerve markets, comments over the strength of the dollar helped weaken the currency slightly. Investors will now be closely watching Trump’s actions in addition to his words, as this will provide valuable insight into how far he is willing to follow through on his campaign policies as well as any future ideas that he develops.


The UK Consumer Prices Index (CPI) increased to 1.6% last month, from 1.2% in November. This was ahead of economists’ expectations and brings the headline rate much closer to the Bank of England’s official 2% target. The rise was driven primarily by higher air fares and food prices. Furthermore, the lower pound has continued to push up the cost of imported materials and therefore, producer prices. December was the first month where there was a stronger indication of currency movements having a tangible impact on the figures. Additionally, UK unemployment continued to fall, decreasing 52,000 to 1.6m in the three months to November. The jobless rate held steady at 4.8%. This has helped drive earnings up 2.7%


China has once again reported annual GDP growth of 6.7%, for the third quarter in a row. Uncannily, this is almost exactly in the middle of their 6.5-7% growth target. Sceptics are more likely to predict that actual GDP growth has slowed to more like 4%. Some analysts prefer to use electricity consumption or seaborne cargo amongst others as a gauge of growth, however, as the economy transitions from export and manufacturing to services and consumption, these may not be the best yardsticks. While it is highly likely that the official figures are incorrect, predicting a more realistic level of growth remains challenging.


Index Open Close Change % Change
FTSE 100 7337 7198 -139 -1.89%
S&P 500 2274 2271 -3 -0.13%
Dax 11629 11630 1 0.01%
Cac 40 4922 4850 -72 -1.46%
Nikkei 225 19287 19138 -149 -0.77%
UK 10 Year Gilt Yield 1.35 1.407 0.057 4.22%


UK GDP and Japanese CPI will be released this week on Tuesday and Thursday respectively.f