While economic activity was generally more resilient than feared in the first half of 2023, there are growing signs that many major economies are losing momentum. We expect most advanced economies to experience mild recessions in the quarters ahead as past rate hikes take effect. However, while wage growth is still too high for central bank’s comfort currently, labour markets are cooling even without recessions. Higher fuel prices will exert upward pressure on headline inflation rates in the rest of the year. But easing core inflation should ultimately outweigh this, allowing central banks to cut rates next year and by more than investors anticipate. Meanwhile, China’s near-term economic prospects seem to have improved a little as policy support has been stepped up a gear, though the longer-term outlook remains poor.
We’ll be discussing September’s Fed, ECB and Bank of England policy decisions in a Drop-In at 3pm BST on Thursday 21st September. (Register here.)
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