UK economy remains in Goldilocks territory after inflation report and data

The UK economy, like Goldilocks’s porridge, is neither “too hot” nor “too cold” if we go by the recent data releases and quarterly inflation report. Following on from a stellar set of data last week we saw sterling slide this week after the Bank of England (BoE) held its ground about the recent monetary policy decisions and some mixed data. Carney defended the actions of the Central Bank before the Treasury Select Committee, but interestingly he left the door ajar for further interest rate cuts and additional QE if the economy required it. The tone suggested that the BoE sees the UK sailing into unknown waters and headwinds.

Meanwhile the data this week has been mixed. The British Retail Consortium (BRC) reported that retail sales declined in August after increasing in July. Most concerning is that the reading was the weakest performance since September 2014 excluding Easter distortions. Official data on August retail sales is due next Thursday and will be closely examined as a result. On the positive side, the key Purchasing Managers Index (PMI) for Services released on Monday surprised to the upside, following on from the positive tone set last week in the PMI numbers for Manufacturing and Construction.

There was more contrasting news from the housing sectors which suggests that prices may have bottomed. The Royal Institution of Chartered Surveyors stated that property sales in the aftermath of the referendum dropped sharply, but had now stabilised. They went onto to say that house prices will increase by 3.3% a year on average for the next five years.

Looking to the final session of the week we have the goods trade balance which measures the difference in value between imported and exported goods during the reported month.