Sam Fleming – Ian Smith – Kate Duguid

Policymakers at the Bank of England breathed a sigh of relief when inflation fell below the 2% target last year, registering 1.7% in September 2024, but the recent inflation trend is moving in the opposite direction.

Service sector inflation – closely monitored by the Bank of England as an indicator of core price pressures – is expected to rise to 4.8%, up from 4.7% previously.

Dave Ramsden, Deputy Governor of the Bank of England, admitted that “the persistence of inflation came as a surprise to me,” as policymakers grow increasingly concerned that accelerating prices may force them to halt further interest rate cuts.

The concern is that the UK appears to be diverging from its peers due to its stubborn inflation problem.

Markets are set to closely watch upcoming data from the Office for National Statistics.

Economists surveyed by Reuters expect the composite PMI to register 50 points, the threshold between growth and contraction, compared to 50.6 points in July.

The closely watched manufacturing PMI is likely to record 49.5 points, indicating deeper contraction after 49.8 points in July.

Analysts at Pantheon Macroeconomics said, “It is clear that investors remain unconvinced that the deal is positive for Germany or the wider Eurozone.”

They added, “We still have to wait some time to see the real impact of the trade deal through actual economic data,” noting that PMI figures will provide “the first glimpse of what is happening.”

S&P Global is expected to release its US PMI data on Thursday, measuring manufacturing and services activity.

These indicators will also provide insight into US company performance as tariffs imposed by Donald Trump come into effect.

Market participants will focus not only on headline numbers but also on subcomponents, especially new orders, employment, and input prices, seeking signs of potential weakness.

Any weakness in activity, especially if new orders or employment decline, is expected to increase estimates of a larger half-point Fed rate cut.

Investors are likely to compare US PMI readings with those of other major economies due this week.

Differences between US and European or Asian PMI figures could impact currency markets, particularly if they affect interest rate differentials.