UK's PPI Continues Its Rise In November

Daily Forex Fundamentals | Written by ecPulse.com | Dec 11 09 10:05 GMT |

Today, the U.K. released its Producer Price Index (PPI) for the month of November showing incline, reflecting the improvement witnessed in the economy recently. The British economy in third quarter contracted 0.3%, lower than 0.6% and 2.4% contractions signaled in the second and first quarters respectively, boosted by the monetary and fiscal interventions by the BoE and government. Mervyn King and other MPC members chose to reduce the interest rate to a historical low of 0.5% in addition to pumping 200 billion pounds of new printed money to bolster the economy and boost inflation. Yesterday, the bank preferred to stick to the current benchmark and APF quantity which they considered appropriate till they analyze the impact of the program on markets. Currently, the BoE already spent more than 187 billion and they mentioned that they will re-assess the effect of measures in February, when they have new projections and conditions become more vivid. The BoE expects the announced program to take another two months to end, while the scale of the program will remain under review. Although the economy showed progress starting from the second quarter, yet prices faced downward pressure impacted by the decline in demand and high unemployment rate. However, as seen recently, prices started to accelerate after falling to 1.1% in September it rebounded in October to 1.5%, above estimates. Today's data is giving additional clue that the price rise will continue in the fourth quarter as annual PPI output for November rose to 2.9% from the revised 1.9%. On the month, the reading slipped to 2.0% from 2.2%. PPI input spiked to 4.0% from 0.4% on the year and slumped to 0.1% from 2.9% on the month. Looking into details, annual PPI output was spurred by the incline petroleum products which soared from -3.1% to 8.3%, while manufactured products inched down to 0.2% from 0.3% on the month. On the other hand, annual PPI input was led by material purchased which rose to 6.9% from 1.8%, while on the month fuel purchased retreated to 0.3% from 6.9%. Energy prices after reaching its bottom in February below $34 a barrel, it surged to one-year high in October above $81 a barrel and it also recorded a high above $81 a barrel in November. On the other hand, the recovery in global demand enhanced sales overseas of British products, boosted by the depreciation in the value especially against the euro since their main trade partners are located in Europe. The bank expects inflation in the near term to climb above 2%, where it predicted previously to reach 0.4% this year and 1.5% next year. Moreover, in the coming period, inflation may incline as darling promised to increase spending especially on health and education although budget deficit is widening, while King said that he has an "open mind" about adding more to the current 200 billion pounds. In addition, the government is continuing its support to banks; for instance, Royal Bank of Scotland and Lloyds Banking Group received 76 billion pounds as a bailout from the government. Darling estimates the economy to contract by 4.75%, higher than March projections of a contraction between 3.75% and 3.25%, whereas next year the economy will grow between 1% and 1.5% and about 3.5% in 2011 and 2012. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk