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Still no recession, but economic growth soggy The news that the economy contracted by 0.3% m/m in March and grew by just 0.1% q/q in Q1 as a whole (consensus +0.1% q/q, Bank of England 0.0% q/q, CE +0.1% q/q) suggests that low real income and high …
12th May 2023
Rates may have peaked, but risks of one or two more hikes remain Today’s 25bps rise in interest rates from 4.25% to 4.50% takes rates to our long-held forecast and may be the last hike, although another hike or two is perfectly possible. We suspect the …
11th May 2023
Core inflation refusing to budge The 0.4% m/m gains in headline and core consumer prices in April leaves core inflation at 5.5%, broadly unchanged from its level at the start of this year, further illustrating that the previous downward trend has stalled. …
10th May 2023
More scope for wage growth to slow Labour cash earnings rose by 0.8% for the third consecutive month, broadly in line with our 0.7% forecast and far below the average 1.8% increase across 2022. As we had expected, regular earnings growth slowed from 0.8% …
9th May 2023
Labour market resilient, but small cracks emerging The decline in full-time positions in April means that the large rise in total employment was weaker than it looks. Hours worked only crept up during the LFS reference week and, given the public sector …
5th May 2023
April strength offset by downward revisions to earlier months The 253,000 gain in non-farm payrolls in April suggests that the labour market remains resilient despite the banking sector turmoil and broader signs of an economic slowdown. Nevertheless, that …
Downside risks to Q1 GDP growth The small rise in export volumes and slump in import volumes in March confirms that net trade boosted GDP growth last quarter. However, as lower imports are likely to be reflected in slower inventory building – which the …
4th May 2023
Strength of exports and unit labour cost growth unlikely to last The sharp fall in the international trade deficit to $64.2bn in March, from $70.6bn in February, was driven by a rebound in exports, but the surveys continue to suggest that renewed declines …
Decline in bank deposits doesn’t look like a bank run March’s money and credit data showed that the collapse of the US bank SVB and the takeover of Credit Suisse in early March triggered a small withdrawal of funds from the overall UK banking system. …
Net exports won’t have boosted GDP in Q1 The wide trade surplus belies the negligible contribution made by net exports to Q1 GDP. The widening of the trade surplus to $15.3bn in March, from an upwards-revised $14.2bn in February, was in contrast to what …
Fed’s focus will turn to policy loosening before long The Fed’s new policy statement provides the clearest hint yet that the 25bp rate hike today is likely to be the last. We expect economic weakness and a sharper-than-expected drop back in core inflation …
3rd May 2023
ISM suggests activity weak in second quarter The slight rebound in the ISM services index to 51.9 in April from 51.2 in March was broadly in line with the small gain in the ISM manufacturing index. Nevertheless, that still leaves the composite index at a …
ADP surge another sign that in April the sweetest showers fall The ADP report – suggesting that private sector employment increased by a stronger 296,000 in April, more than double the 142,000 gain the month before – is another signal that the economy …
Weakness in consumption growth will deter RBA from further rate hikes While retail sales values rose at a decent pace in March, we estimate that sales volumes fell the most since 2021’s lockdowns last quarter and that weakness has further to run. The 0.4% …
Tight labour market raises the risk of outsized RBNZ hike The strength of New Zealand’s labour market last quarter poses upside risks to our view that the RBNZ will lift rates by 25bp later this month. The 0.8% q/q rise in employment in Q1 was stronger …
Tightening cycle over but rates will only be lowered in Q2 2024 The Reserve Bank of Australia retained its tightening bias when it lifted the cash rate by 25bp at today’s meeting, but we suspect that it won’t raise interest rates any further over the …
2nd May 2023
Manufacturing outlook weak, but hi-tech revival boosting construction The trivial rebound in the ISM manufacturing index to a still depressed 47.1 in April, from 46.3, contrasts with the more substantial recovery in the alternative S&P Global PMI but …
1st May 2023
Today’s news on wages and inflation should have eradicated any remaining doubts that the Fed will hike interest rates by an additional 25bp next week. According to the Employment Cost Index (ECI), first-quarter private wages increased by 1.2% q/q, with …
28th April 2023
Decent first quarter likely to be followed by contraction The small rise in GDP in February points to a healthy first-quarter growth rate but, with the preliminary estimate pointing to a contraction in March and activity set to suffer in April due to the …
Inflation figures suggest 50bp ECB hike next week still likely National inflation figures released today suggest that euro-zone headline and core inflation edged up in April. That adds to the reasons for the ECB to opt for a 50bp hike at its meeting next …
Germany disappoints, while Italy powers ahead National GDP data released so far suggest that it is touch and go whether the euro-zone economy expanded in Q1, though it did avoid a contraction. We expect economic growth to remain very weak in the coming …
Positive growth in Q1 despite slumping domestic demand The increases in GDP in France and Spain in Q1 bode well for the euro-zone aggregate data to be released later this morning. We suspect that activity in both countries will lose some momentum later …
Yield Curve Control here to stay for now The B ank of Japan predicted that inflation will fall well below its 2% target in FY2025 when it kept policy settings unchanged today. And while it pledged to conduct a review into the Bank’s policy measures, the …
Resilience in activity won’t last The further rise in industrial production and retail sales in March means that the economy may not have shrunk in Q1 after all, but with recessions in major trading partners looming we still expect GDP growth to be weaker …
Labour market loosening in earnest Labour market conditions loosened visibly in March and there’s room for it to loosen further given the recession we’re expecting in the second half. Meanwhile inflation reversed course and increased in April. Our …
Economy starts the year on a weaker footing The disappointing 1.1% annualised rise in first-quarter GDP indicates that the economy had less forward momentum at the start of this year than previously thought. We continue to expect the drag from higher …
27th April 2023
The 3.2% m/m jump in durable goods orders in March mainly reflects a stronger-than-expected gain in the more volatile commercial aircraft component, with the details suggesting that business equipment investment contracted again in the first quarter. …
26th April 2023
Inflation will only return to target in H2 2024 While inflation is moderating slightly faster than the RBA had anticipated, price gains remain far too strong to be consistent with the Bank’s 2-3% inflation and we’re sticking to our forecast of a final …
More wiggle room for the Chancellor The news that total borrowing in 2022/23 was £13.2bn lower than the Office for Budget Responsibility predicted only a month ago provides the Chancellor with more wiggle room to cut taxes/raise spending ahead of the next …
25th April 2023
A note of caution from the Ifo The small increase in the Ifo Business Climate Index in April confirms that the German economy remained resilient in the face of higher interest rates at the start of Q2. But the survey was much more downbeat than the PMIs, …
24th April 2023
Resilience in economic activity continues into Q2 April’s flash PMIs suggest the economy is still proving resilient to the dual drags of high inflation and high interest rates going into Q2. That, and the uptick in the services output prices balance, …
21st April 2023
Strong start to Q2 points to 50bp May hike The further rise in the Composite PMI in April suggests that the euro-zone economy continued to expand at the start of Q2. With price pressures and employment intentions also strong, that adds to the reasons for …
Not as bad as it looks, but higher interest rates to restrain spending The 0.9% m/m fall in retail sales volumes in March (consensus -0.5%, CE -1.0%) probably isn’t as bad as it looks as it was partly due to the unusually wet weather. The further rise in …
PMIs suggest exports downturn may be short-lived April’s flash PMIs point to further upside risks to our forecasts, pointing to a broad improvement in both domestic and external demand and suggesting that the exports downturn will be short-lived. …
Lower import price inflation will tame underlying inflation March data were very much in line with the Tokyo CPI. Underlying inflation saw a sizeable increase in March, while headline inflation inched down thanks to falling energy prices. A stronger yen …
Preliminary volume data confirms Q1 drag from net trade The trade deficit narrowed in March as import volumes fell faster than export volumes. Data for Q1 so far are still consistent with a negative contribution from net trade to GDP. Export values …
20th April 2023
Price pressures show signs of easing Amid ongoing concerns that non-tradables inflation will settle at an uncomfortably high level, we still expect the RBNZ to push ahead with one final 25bp rate hike in May. The 1.2% rise in consumer prices last quarter …
Stubborn core inflation points to one more rate hike…at least The smaller-than-expected fall in CPI inflation in March, from 10.4% in February to 10.1% (consensus/CE 9.8%, BoE Feb MPR 9.2%) and the stubbornness of core inflation, which stayed at 6.2% …
19th April 2023
Core inflation pressures continue to ease While base effects helped to pull headline inflation sharply lower in March, there were also some encouraging signs in core inflation, as the average three-month annualised gain in CPI-trim and CPI-median fell to …
18th April 2023
Wage growth easing albeit slowly The labour market became a bit less tight in February and wage growth continued to ease, albeit slowly. That leaves the Bank of England with a tough call on whether to raise interest rates further. Tomorrow’s release of …
Inflation concerns will prompt a final 25bp rate hike in May The minutes of the RBA’s April meeting reinforce our view that the decision to leave rates on hold did not signal an end to the Bank’s tightening cycle. Indeed, the Board did discuss the case …
Small rebound in confidence suggests no big hit from bank turmoil The small rebound in the University of Michigan consumer sentiment index in early April suggests that the easing of the crisis in the banking sector has reassured consumers. Nevertheless, …
14th April 2023
Further evidence of fading economic momentum The 0.5% m/m fall in manufacturing output in March provides yet more evidence of a significant loss of economic momentum going into the second quarter. While the return of temperatures to seasonal norms last …
Sales boosted by online strength Retail sales fell by 1.0% m/m in March, adding to the evidence that the strong start to the year was partly due to the unseasonably mild winter weather. With control group sales only falling by 0.3% m/m last month, …
Continuing to dodge recession The stagnation in real GDP in February (consensus +0.1%, CE 0.0%) means the economy probably avoided recession in Q1. But it also increases the chances that the Bank of England will need to raise interest rates further to …
13th April 2023
The strength in March’s labour market data will probably prompt the Reserve Bank of Australia to deliver a final 25bp rate hike next month, but unemployment will rise before long. The 53,000 rise in employment last month was much stronger than most had …
Fed uncertain about impact that banking turmoil will have on economy The minutes of the Fed’s mid-March policy meeting are, overall, arguably dovish since in the wake of the collapse of SVB and Signature Bank, “several participants noted that…they …
12th April 2023
The Bank of Canada delivered mixed messages today, noting that it is more confident that inflation will decline in the next few months but less confident that inflation will return to 2% as quickly as it previously anticipated. Nonetheless, with the …
Core inflation remains elevated despite easing in shelter There were some encouraging signs in the March CPI report, including the first evidence that housing cost inflation is slowing, but core prices still increased by 0.4% m/m which, on an annualised …
Another bearish sign for business investment in Q1 “Core” machinery orders fell by 4.5% m/m in February, following a 9.5% rise in January. Orders from the manufacturing sector saw a strong 10.2% m/m rebound, largely due to a huge spike in orders from the …
