Market Mover - BNP PARIBAS - Investment Services India

Key Data Preview
Source: Reuters EcoWin Pro
Chart 9: UK CPI vs RPI
Jan (f) Dec Nov Oct
CPI % m/m 0.0 0.6 0.3 0.2
CPI % y/y 3.6 2.9 1.9 1.5
RPI Index 217.6 218.0 216.7 216.0
RPI % y/y 3.6 2.4 0.3 -0.8
RPIX % y/y 4.5 3.8 2.7 1.9
Key Point:
We expect a final month of accelerating inflation in
January, largely due to the VAT hike.
BNP Paribas Forecast: Rising
UK: CPI (January)
Release Date: Tuesday 16 February
We expect UK CPI to post a final month of accelerating
inflation during January. The big story this month is the
return of the rate of VAT to 17.5%. Given the extent of the
upward surprise last month, there is some suggestion that
some firms passed on the VAT hike early. However, we
also believe that conservative management of Christmas
inventories has meant that the degree of discounting was
probably less generous than last year.
When VAT was cut, this tended to depress the CPI by
around 0.7 percentage points – slightly less than if there
had been full pass-through. Full pass-through of the VAT
hike could add a full percentage point to % y/y inflation.
However, several retailers have reported that they will not
pass on the VAT hike while others have said it will be
deferred. Hence we expect an addition of around 0.75
points in January.
RPI inflation is likely to rise slightly more sharply, not least
given accelerating house price inflation and base effects
related to the mortgage interest component.
We believe that January will mark the peak, with base
effects becoming more favourable from February onwards.
Chart 10: UK Employment and GDP
Source: Reuters EcoWin Pro
Jan (f) Dec Nov Oct
Claimant Count Chg -15k -15k -11k 6.0k
ILO Unemp 3m-Chg -5k -7k 21k
ILO Emp 3m-Chg 5k -14k 52k
Weekly Earns 3m/yr 0.9% 0.7% 0.6%
Ex-Bonus 3m/yr 1.2% 1.1% 1.2%
Key Point:
We expect another robust month of improvement in
the key labour market indicators. The new measure
of wage inflation is likely to rise from a low level.
BNP Paribas Forecast: Improving
UK: Labour Report (January)
Release Date: Wednesday 17 February
We expect further signs of firming in the UK labour market
in the January Labour Report. Claimant count
unemployment has been lower than expected for the last
nine consecutive months, culminating in a 15k decline in
unemployment during December. Given the continued
upward trajectory in survey indicators of output growth, we
expect further improvement in the labour data. We expect
another robust reading in January, a 15k fall.
The ILO data (which are a month behind the claimant
count) have also been on an improving trend. We expect
employment to have posted an increase in the last three
months and unemployment to have registered a small
decline. Since these data are a 3-month change, they take
a little longer to turn the corner. Data in the coming months
are likely to show a more substantial improvement.
The ONS has changed its preferred measure of wage
inflation. The average earnings index has been replaced by
average weekly earnings. This is based on the same
underlying data, but different methodology. The new series
tends to be more variable, partly because it includes more
outliers, so we are braced for some big surprises. We
expect a small acceleration in December, though from a
low level.
Market Economics 12 February 2010
Market Mover
51
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