The week ahead of full of important economic events out of the United Kingdom that may move both the currency and the stock market. The British pound recovered some of the lost ground in 2022 against the US dollar, and the stock market bounced from its lows too.
After the news that the UK economy shrank by 0.2% in the third quarter of the year, the big question is – what lies ahead?
It was the first GDP contraction in one-and-a-half years. The services sector, in particular, showed signs of weakness as consumer-facing services dropped.
For fundamental traders monitoring the UK economy, the week ahead is critical for the end-of-the-year positioning. The focus is on four economic events:
- Employment data
- Monetary policy report hearings
- Autumn Forecast Statement
Employment data will move UK markets
Tomorrow is a big day for the UK markets as the employment data for October is due. The Claimant Count Change is expected to decline to 17.3k from 25.5k previously, while the Unemployment Rate is forecast to remain at 3.5%.
But the focus of tomorrow’s employment data will be on the Average Earnings Index. Inflation is ravaging the UK economy; tomorrow, the index is expected to decline to 5.8% from 6%.
Markets expect inflation to keep rising
Last week, the US October inflation data surprised market participants. It showed signs of cooling off, triggering a sharp rally in the US stock market.
But in the UK, inflation is expected to keep climbing. On Wednesday, the CPY y/y is forecast at 10.5% in October, higher than the previous 10.1%.
Monetary policy report hearings
Later tomorrow, traders and investors should pay attention to the quarterly monetary policy report hearings. The Bank of England Governor and some MPC members will testify on inflation and the UK economic outlook before the Parliament’s Treasury Committee, and both the pound and the stock market are sensitive to their comments.
Autumn Forecast Statement
This week might see the release of the Autumn Forecast Statement. This annual report on the economic outlook contains details about the government’s budget for 2023.
Judging by how the markets reacted to the mini-budget announcement during Truss’s time as Prime Minister, it is worth watching what the report contains.
All in all, this is a big week for the pound and the FTSE 100 index, so volatility will be higher than usual.