The Bank of England will be delivering its Quarterly Inflation Report tomorrow. Given market expectations for 6 percent interest rates by the end of the year, in order to satisfy market expectations, the BoE will have to be hawkish. Economic data has been mixed. Retail sales were weaker than expected in the month of June but the labor market tightened.
On a headline level, annualized consumer price growth slowed, but taking a look at just core prices, inflationary pressures actually increased. At this point the UK economy could handle a year end interest rate hike, but the outbreak of Foot and Mouth disease brings with it new risks. It is at an early juncture which means it may not matter much to the central bank. Yet, the British pound has given back all of last week?s gains following the discovery of another case of Foot and Mouth and the release of weaker than expected BRC retail sales today. The last outbreak in 2001 cost the UK as much as GBP10 billion pounds. Local groups are already screaming that the ban on livestock exports could cause the meat and livestock industry to lose as much as GBP10 million a day.