The pound faces a decisive week ahead of it as another round of post Brexit economic data threatens to either cement its recovery since the referendum, or to reverse it.
The coming days will see inflation, unemployment, average earnings and retail sales numbers released for the month of August. The Bank of England will also deliver its latest interest rate decision, on Thursday, although no changes to rates or stimulus are expected.
Should the data confirm that the UK economy has continued to motor along undeterred by June’s referendum then sterling could have the required catalyst for a renewed assault against ground lost to the US dollar and the euro in the aftermath of the Brexit vote.
If August’s numbers fail to lift the mood then the pound could face renewed weakness as traders are likely to bet that the much prophesied effects of the electorate’s decision are beginning to crystallize.
During the recent week, sterling continued to pare gains relative to the US dollar, while remaining range bound against the euro in the absence of any market moving economic news.
GBP/USD fell as low as 1.3250 on Friday while the EUR/GBP exchange rate hovered between 0.8450 and 0.8490.
All releases due over the coming days will provide key insights as to the health of the economy.
Tuesday’s inflation number, which is expected to have risen from 0.6% to 0.7% during August, will highlight the effect on domestic price pressures of that a heavily devalued pound is having.
Wednesday’s unemployment rate and monthly claims data will shed some light on the labour market’s response to the referendum. After a steady set of numbers immediately before and after the vote, investors will be keen to examine the latest for signs of distress.
In addition, wage data will be in focus given that growth of disposable incomes is a key component of economic growth.
Forecasts suggest a modest rise in inflation combined with an unemployment rate that remains steady at 4.9%.
Projections for average earnings suggest a minor reduction in growth relative to the preceding period, from 2.4% annualized, to 2.1% during the three months to the end of August.
Thursday’s retail sales numbers are likely to point toward a contraction in month on month spending during August as July’s near record breaking increase proves too difficult to best. The consensus currently suggests a contraction of -0.4%, which would erase some of July’s +1.4% growth.