UK inflation set to peak much earlier than forecast
The Pound found a bit of support in the market yesterday (lost today) after the new Prime Minister Liz Truss suggested a cap to household energy bills that are close to current levels. We are expecting to hear some kind of official announcement by the end of the week, much faster than first thought. Such a move could immediately slash inflation and change the UK's economic outlook, whilst pushing £ higher all at the same time.
You may be wondering why this wasn't done before or how will this be paid back (around £100BN), but that is for another time to discuss as this scenario is moving quickly. A support package is needed and one is coming for both consumers and businesses. The doom and gloom narrative may be about to alleviate somewhat, which allows for a more positive trading environment and more attractive GBP. With worries about upcoming energy payments about to subside, consumers will have some financial breathing space that the Government would hope will turn into spending or investing, both critical for the UK's economic performance.
Europe and Russia have entered a game of 'chicken', after President Putin throws down the gauntlet. He commented 'Russia will not stick to oil and gas contracts if prices are capped'. Effectively, happy to give up on revenue that will in turn hurt Europe's economy further. This energy war is far from over and all scenarios will have to be played out when the ECB make upcoming policy changes.
The Euro-Zone released some positive Q2 GDP figures earlier today with household spending helping growth. The data shows a more robust economy in France, Italy & Spain, but Germany registered no growth at all, a major concern. Tomorrow we see the latest release from the ECB on interest rates with a sizeable hike priced in. Central bank meetings are all risk events with the last few months seeing volatility at every one. Both the figure and the tone matter, so a must watch for anyone with exchanges in the pipeline.