UK data in focus, traders await BoE inflation report

The upcoming UK economic calendar is about as active as last week, as Tuesday starts the week’s highlights off with Consumer Price Index, Producer Price index and, Retail Price Index data to be released .

The Office for National Statistics (ONS) data out on Tuesday is expected to show:

- Annual CPI probably fell to 2.5% from 2.7%

- October PPI output was likely flat at 0.0% from -0.1%

- Annual PPI output is estimated to decline to 1.0% from 1.2%

- Annual RPI is forecasted to have fallen 3.0% from 3.2%

Data released today is expected to show annual inflation level in the UK fell last month, which could give policymakers a leeway to tackle a stubborn economic recovery, perhaps with additional monetary stimulus if growth disappoints.

CPI is important because it is the measure targeted by the Bank of England`s interest rate-setters. Policymakers have been forced to tolerate the above-target inflation as they keep interest rates low to try to shore the recovery back to health.

Markets will be watching The Bank of England`s latest inflation report due on November 13, to see if the central bank upgrades its economic forecasts.

Last month policymakers revealed that unemployment was falling and the economy growing faster than predicted in its previous quarterly inflation report, boosting expectations that these forecasts would be upgraded.

UK recorded its strongest growth in the last three years in the third quarter of 2013, with a quarterly growth of 0.8 percent that was in line with expectations and higher than a 0.7 percent quarterly rise in the second quarter.

Meanwhile, the Bank of England made no change to its monetary policy last week, sticking to its pledge to keep interest rates at a record low for the foreseeable future despite signs of a strengthening economic recovery.

The Monetary Policy Committee (MPC) chose to keep rates at a record low of 0.5%, which is where they have been since March 2009. It also kept its £375 billion asset purchase program unchanged.

Under the Bank`s policy of forward guidance, it has said it will not consider raising interest rates until the unemployment rate has fallen to 7%. Mark Carney introduced forward guidance back in August.

GBPUSD traded higher last week, as the BOE left rates and stimulus unchanged. The week began on a negative note, with Cable slashing off new highs set after UK Construction PMI came in with a reading of 59.4, versus 58.9 expected. The pair continued higher on Tuesday after UK Services PMI came out with a reading of 62.5, versus 60.4 expected.

The pound resumed its decline for a third straight session versus the U.S. dollar to trade at 1.59781 after it hit a low of 1.5964 and a high of 1.59908, compared to the session’s opening of 1.89876.