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Daily Financial Market Outlook
Data published yesterday showed that annual UK CPI inflation rose to 3.5% in January from 2.9% in December, pushing CPI more than one percentage point above the 2% target. This prompted Bank of England Mervyn King to write an explanatory letter to Chancellor Alastair Darling. Governor King's letter highlighted the temporary nature of elevated short-term price pressures, while suggesting that significant spare capacity in the economy would return CPI towards its target over the medium term.
This medium term theme is likely to resonate in February's MPC minutes, released today. Given the weak growth and inflation forecasts published in the Inflation Report last week, it is likely that some members voted for an immediate extension to the Asset Purchase Facility (i.e. Quantitative Easing policy). We expect a split vote with three members having voted for more QE in February.
Also released today are UK January unemployment figures where we look for a third consecutive monthly decline. In the US the main data attraction will be industrial production figures which are expected to show a 0.6% month-on-month rise in January, following on from recent strong survey readings. The FOMC minutes are also released later this evening.
Chart: Survey evidence suggests a further fall in UK claimant count unemployment
Lloyds TSB Bank
http://www.lloydstsbfinancialmarkets.com
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