UK markets pulled back this week with the FTSE 100 Index falling 0.7% to trade at 8,675 points at the time of writing. UK inflation rose more than expected to a 10 month high of 3% in January, according to figures from the Office for National Statistics, highlighting the challenge for the Bank of England as it contends with persistent price pressures and a weakening economy.
The annual rate of inflation was above the 2.5% recorded in December and the 2.8% forecast by economists polled by Reuters. It was also well above the recent low of 1.7% in September. The increase was driven by air fares dropping less than is usual in January, higher costs for private schools, after the government imposed VAT on fees, and higher costs for food and non-alcoholic drinks.
Services inflation, a key measure of underlying price pressures for rate-setters, rose to 5% in January, up from 4.4% in December, but was below the Bank of England’s expectations of 5.2%.
Core inflation, which excludes energy, food, alcohol and tobacco, climbed to 3.7% from 3.2% in December in line with analysts’ expectations. The Bank of England forecasted earlier this month that inflation would rise to 3.7% in the middle of the year, propelled by higher global energy costs, before falling back to around its 2% target.
In the commodity markets, Brent crude futures traded around $76 per barrel on Friday and are set to end the week slightly higher, as the market assesses supply disruptions in Kazakhstan and the OPEC+ production increase delay against demand worries.
Russia said Caspian Pipeline Consortium oil flows, a major route for crude exports from Kazakhstan, were reduced by 30%-40% on Tuesday after a Ukraine drone attack on a pumping station. A 30% cut would equate to the loss of 380,000 barrels per day of market supply, Reuters calculations show. However, other factors and potential boosts to oil supply added to concerns about prices.
Potential restarts of oil flows from Iraq’s Kurdistan region were offsetting supply risks, ING said in a note. A resumption of the Iraqi oil flows would add 300,000 barrels of supply per day onto the market, ING analysts said. Import tariffs announced by US President Donald Trump’s administration could dent oil prices by raising the cost of consumer goods, weakening the global economy and reducing fuel demand. Concerns about European and Chinese demand were also helping keep prices in check.
Gold prices traded around $2,930 an ounce on Friday close to record highs, as concerns over Donald Trump’s tariff threats increased investor appetite.
In the commodity markets, Brent crude futures traded around $76 per barrel on Friday and are set to end the week slightly higher, as the market assesses supply disruptions in Kazakhstan and the OPEC+ production increase delay against demand worries.
Russia said Caspian Pipeline Consortium oil flows, a major route for crude exports from Kazakhstan, were reduced by 30%-40% on Tuesday after a Ukraine drone attack on a pumping station. A 30% cut would equate to the loss of 380,000 barrels per day of market supply, Reuters calculations show. However, other factors and potential boosts to oil supply added to concerns about prices.
Potential restarts of oil flows from Iraq’s Kurdistan region were offsetting supply risks, ING said in a note. A resumption of the Iraqi oil flows would add 300,000 barrels of supply per day onto the market, ING analysts said. Import tariffs announced by US President Donald Trump’s administration could dent oil prices by raising the cost of consumer goods, weakening the global economy and reducing fuel demand. Concerns about European and Chinese demand were also helping keep prices in check.
Gold prices traded around $2,930 an ounce on Friday close to record highs, as concerns over Donald Trump’s tariff threats increased investor appetite.
US equity futures rose on Friday following a sell-off in the previous session, triggered by Walmart’s disappointing outlook, which raised concerns about economic growth. In Thursday’s regular trading session, the Dow Jones Industrial Average dropped 1.01%, the S&P 500 lost 0.43%, whilst the Nasdaq Composite declined 0.47%.
Minutes from January’s Federal Open Market Committee meeting released this week indicated that officials want to see further progress on inflation before any new interest rate cuts, with a majority of US central bankers saying they need to adopt a careful approach to any monetary policy changes.
During the meeting, Federal Reserve officials judged that it was still appropriate to keep monetary policy at restrictive levels, as they worried about the growing upside risk to the outlook for inflation, and assessed the impact of the incoming Trump administration’s economic policies. Participants to the meeting indicated that provided the economy remained near maximum employment, they would want to see further progress on inflation before making additional adjustments to the target range for the federal funds rate.
Federal Reserve officials also signalled that monetary policy was not on any preset course, with a range of possibilities ahead. The committee could hold the policy rate at a restrictive level if the economy remained strong and inflation remained elevated, while policy could be eased if labour market conditions deteriorated, economic activity faltered, or inflation returned to 2% more quickly than anticipated, according to the minutes.
On the economic data front, initial claims for state unemployment benefits in the US rose 5,000 to a seasonally adjusted 219,000 for the week ended February 15th, the Labor Department said on Thursday. Economists polled by Reuters had forecast 215,000 claims for the latest week. Claims have been bouncing in the 203,000-223,000 range so far this year. Historically low layoffs are keeping the labour market stable, but that could soon change as workers depending on federal government contracts or funding lose their jobs.
The White House wants to cut the roughly 2.3 million federal government workforce excluding the military and post office. Federal government layoffs, hiring freezes and spending cuts are expected to have ripple effects on local economies, especially in Washington D.C. and the neighbouring states of Virginia and Maryland, and trigger private sector job cuts.
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