Daily Economic Outlook/ Jan 20

The December US CPI data due to be released today is likely to show a rise by 0.22pp to 0.7% y/y. The December housing starts and building permits are expected to continue on a strong upward trend.

December's labour market release showed that UK's LFS unemployment continued to drop, reaching 5.2% in the quarter to October. However, there was an unexpected decline in annual headline pay growth by 0.66 to 2.4%. The central bank's January MPC meeting minutes and Governor Carney's statement yesterday highlighted the likelihood that the weakness in wage growth might show the recent run of very weak inflation data. Also, it is arguable that the slackness in the labour market might not be declining as fast as the recent drop in the unemployment rate because of a likelihood of a relatively larger pool of part-time employees that want to work for longer hours.

The upcoming UK labour market data today for the September to November months is expected to support this scenario. According to business surveys, employment intentions continue to be strong and underpin forecast of further drop in unemployment rate to 5.1%. Meanwhile, the indicators of pay pressures show further weakening in pay growth to 2%. The BoE is expected to revise its inflation forecast downward during its Inflation Report due February because of the likelihood of a prolonged period of weak earnings growth in the coming months.

Meanwhile, the Bank of Canada is anticipated to maintain the policy rate at 0.5% due to the recent depreciation of the Canadian dollar that broadly countered the negative effect of lower oil prices.