It has been a fairly positive week for UK economic data this week – at least as far as UK household finances are concerned. Earlier in the week, we saw average earnings rise by 3.1% in the three months to July and yesterday saw inflation drop to 2.4% in September. It essentially means that we will all have a little bit more cash in our pockets for the time being.
The pound weakened against the dollar following the release, not least because the markets take the drop in inflation as a sign that the Bank of England might resist hiking rates in the near future. Interest rate increases are a means of keeping inflation in check, but if it is dropping of its own accord, then there is little reason to act. Still, it is by no means assured that rates will remain on hold for the foreseeable future, especially as we have seen spikes in inflation before.
Today we will see the retail sales figures for September which are expected to climb higher on an annual basis. Month-over-month, a 0.4% fall is being predicted which would be rather disappointing. Still, plenty of releases have missed forecast and we might well see similar today.