Daily Economic Outlook: 18 August, 2015

UK inflation data for July is set to provide today's domestic market focus. The recovery in the annual rate of CPI inflation to a positive reading of +0.1% in May proved temporary, slipping back to 0.0% in June, with the weakness concentrated in the 'core' rate, notably in the clothing and footwear category. 

"As the appreciation of sterling over recent months is likely to weigh on import prices, the recovery in core inflation is expected to be very gradual, says Lloyds Bank. However, with the BRC shop price index suggesting that food price discounting eased in July, and only a modest fall in forecourt fuel prices over the month, we expect no change in headline inflation overall, leaving it at 0.0% in July", states Lloyds Bank. 

With the possibility of a relapse into 'deflation' having been explicitly highlighted by BoE Governor Carney, the implications for the policy outlook of softer outturns are likely to be limited for as long as evidence of rising underlying domestic costs continues to accumulate.

Internationally, US housing data will be of interest against a backdrop of the improved tone of US activity data more generally. Both building permits and housing starts have recovered to levels last seen in 2007, although the run-rate of both is still subdued compared to the more exuberant pace of activity in advance of the financial crisis. 

The recent surge in building permits has been particularly marked, however, with a 29% rise since March 2015. As such, even a sharp pullback in permits in July would do little to change the impression that housing market activity continues to recover