Inflation report to provide key update on UK economy (+ video)

Thursday’s quarterly inflation report (QIR) will provide the market with some insight into the Bank of England’s thinking over interest rates: in light of recent oil-price driven falls in the inflation rate. Below-target inflation gives the bank more flexibility as to when they begin to raise rates; the market now expects no rises until the middle of 2016. We can expect Mark Carney to use the QIR to indicate the market estimate is too dovish, which should be supportive for the pound. Industrial and manufacturing production data out tomorrow is expected to show moderate growth in December, as will the National Institute of Economic and Social Research estimate of gross domestic product growth in January.
 
Friday saw very positive US employment data, with 257,000 new jobs created, and big revisions to the November and December numbers. Crucially, wage growth looks to be finally moving higher after stagnating for the last five years. US retail sales are the data highlight for the dollar this week, with a small decline from December’s forecast.
 
Developments in Greek debt negotiations continue to drive risk sentiment across Europe. Last night Greek PM Alexis Tsipras told the Greek parliament he will not seek an extension of the current bailout program, setting the two-week old government on a collision course with its creditors ahead of the EU summit this week. 

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