Week Ahead Economic Preview: Week Of 17 January 2022

 | Jan 13, 2022 10:40

h2 UK inflation, employment data, BoJ meeting and China data

A busy week ahead is lined with central bank meetings in Japan and Malaysia while labour market and inflation data from the UK will be in focus. German ZEW survey figures and eurozone consumer confidence numbers will also be due while in APAC, China's data dump, including Q4 GDP, Japanese inflation and Australian jobs data will be highlights.

Attention will focus first on China's fourth quarter GDP release, which is issued alongside details of industrial output and retail sales for December. While PMIs were better than expected, this was prior to the surge in COVID-19 cases, placing the emphasis on flash January PMI data in the following week. Meanwhile, the economy is expected to have slowed sharply in the final quarter of the year amid COVID-19 disruptions. Any severe weakening of production will be a cause for concern in relation to the global supply crunch.

Attention then shifts to the UK. The BoE surprised markets by hiking rates in December citing concerns over high inflation and the resilience of the job market following the end of the government's furlough scheme. Whether inflation has continued to rise, having hit a decade high of 5.1% in November, and whether jobs growth has been sustained - as indicated by recruitment surveys - will likely be key factors in determining the timing of the next rate hike.

In APAC, the Bank of Japan and Bank Negara Malaysia meet for the first time of the year. No changes to monetary policy settings expected but any comments on the potential impact of Omicron will be assessed.

h2 UK labour market in focus/h2

After surging inflation in the US added to bets that the FOMC would hike rates three times in 2022, next week's focus shifts to the Bank of England. Having already started hiking rates back in December, upcoming data will be scoured for clues as to the pace of policy tightening in the coming year.

UK inflation has already risen to a decade high of 5.1%, and soaring utility bills look set to drive it still higher in coming months. The Bank is pencilling in 6% by April, but most economists expect the pace to starting cooling in the second half of the year. A rise in the upcoming CPI numbers will therefore be of little surprise, or influence on policymakers. Instead, it is the labour market which arguably needs to be watched more closely. The Bank's concern is that inflation expectations are rising, which could feed through to higher wage growth, meaning inflation stays uncomfortably high for longer than currently anticipated. Such concerns are fuelled by the prior release of official data showing the number of unfilled vacancies having risen to 1.2 million while unemployment was down to 1.4 million: an implied record low ratio of job seekers to vacancies, pointing to a tight labour market.

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