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Yesterday’s 25 basis point rise in interest rates from 4.25% to 4.50% was widely expected in the end. But we’ve been forecasting that rates would rise to 4.50% since November last year. (See here .) The most striking thing coming out of yesterday’s …
12th May 2023
Over the past few years France has been an exception to the pattern in many other countries of falling labour supply and declining labour force participation. And there is no sign that this improvement is running out of steam. Total employment in France …
The fragility of Sweden’s property sector hit the headlines again this week as commercial real estate firm SBB suffered a downgrade of its credit rating to “junk” status and cancelled its dividend. We covered the implications for property elsewhere but …
Pound standing to attention for King’s Coronation Note: We’ll be discussing the Bank of England’s May decision in an online briefing at 10:00 EDT/15:00 BST on Thursday, 11 th May . Register Now . The Coronation of King Charles III means the UK is on show …
5th May 2023
Note: We’ll be discussing the economic and market risks around the upcoming Turkish presidential and parliamentary elections on at 09:00 EDT/14:00 BST on 10 th May . Register now. Turkey’s election race heats up Opinion polls are now painting a clearer …
Hard data released this week paint a more downbeat picture of the euro-zone economy than the latest surveys. Three points are worth highlighting. First, the data confirm that the 0.1% q/q rise in euro-zone GDP in Q1 masks a greater weakness in domestic …
The Bank of England’s Chief Economist, Huw Pill, has come under fire this week after saying that everyone in the UK “needs to accept that they’re worse off and stop trying to maintain their real spending power by bidding up prices whether through higher …
28th April 2023
CEE edges closer towards monetary easing Central banks across Central and Eastern Europe (CEE) provided firmer signs this week that, with inflation now declining , monetary loosening may soon be on the cards. But there are still clearly big concerns that …
MNB takes its first steps towards interest rate cuts The deputy governor of the Hungarian central bank (MNB) made a splash this week by signalling that policymakers may cut the upper end of the bank’s interest rate corridor at their meeting next Tuesday. …
21st April 2023
The stubbornness of CPI inflation in March, which seems more marked than elsewhere (see here ), has left us more comfortable than we were at the start of this week with our view that the Bank of England will raise interest rates by 25 basis points (bps) …
More signs of economic resilience… GDP data due next week are likely to confirm that, after stagnating in Q4, the euro-zone economy returned to growth in Q1. We have pencilled in a 0.2% q/q expansion in the region as a whole, with positive outturns in …
Surge in household incomes unlikely to be sustained The UK economy has continued to be more resilient to the twin drags of higher inflation and higher interest rates than we thought. Real GDP was flat in February despite an extra drag from the strikes. …
14th April 2023
Headline inflation falling, but little else to cheer for The raft of March inflation data released across Emerging Europe this week showed that the regional disinflation process is now well underway, but that core price pressures remain incredibly strong. …
Data point to positive growth in Q1 The latest official activity data suggest that the euro-zone economy posted a small expansion in Q1. Admittedly, retail sales fell in February, continuing the downward trend they have been on for over a year. But lower …
Current market pricing suggests that there is around a 60% chance that, at the next policy meeting in May, the Monetary Policy Committee (MPC) raises interest rates by 25bps, from 4.25% now to 4.50%. This isn’t surprising given the decision will probably …
6th April 2023
Expansion in Q1 likely… After stagnating in Q4, euro-zone GDP probably rose in the first quarter. The final Composite PMI , released this week, confirmed that economic conditions improved further in March (though a bit less than implied by the flash …
CEE remains in recession in Q1 The batch of hard activity data and surveys released across Central Europe this week were relatively weak and suggest that GDP contracted in most economies again in Q1. We think the regional downturn will stabilise in Q2, …
While there are downside risks from hidden exposures or a sudden loss of confidence and deposits, our sense is that the banking issues won’t escalate significantly further, or spread to UK banks. (See here .) The broad message from this week’s …
31st March 2023
This time last week the markets and financial media were worrying about the future of Deutsche Bank. German Chancellor Olaf Scholz publicly stated that the bank was “very profitable” and President Macron declared that the European banking sector as a …
As we discussed in our “Drop In” webinar after this week’s Bank of England policy decision (see here ), the 25 basis points (bps) hike in interest rates, from 4.00% to 4.25%, could prove to be the end of the tightening cycle. But it is the data on the …
24th March 2023
A few key points on Europe’s banks We discussed the recent turmoil in the banking sector in a Drop-in this week. (See here , or you can listen to a shorter version on our podcast here .) The big picture is that there are reasons to be cautiously …
The past week has provided a worrying reminder of the fragility of banking systems to rising interest rates. All our analysis on this can be found on our key themes page . Many metrics of financial market functioning have deteriorated worryingly fast and …
17th March 2023
Euro-zone bank equities have come under severe pressure this week after troubles at some US regional banks and at Credit Suisse raised concerns about the health of banking systems more generally. At the time of writing, the Eurostoxx bank index is down …
The view that interest rates in developed markets may rise further and stay higher for longer than previously anticipated gained further traction this week following US Fed Chair Jerome Powell’s hawkish comments on Tuesday. Our US Economics team revised …
10th March 2023
GDP shrank in Q4 (to two decimal places) The third estimate of euro-zone GDP in Q4, released earlier this week, strengthened our conviction that the economy will underperform most forecasters’ expectations. The 0.1% q/q expansion in GDP in the fourth …
We have revised up our forecasts for real GDP and no longer think the economy will be quite as weak. This has very little to do with the 0.3% m/m rise in real GDP in January released this morning. Most of that was a rebound after the widespread strikes …
Brexit looking a bit brighter The economic developments this week were generally positive, starting with news that the Prime Minister, Rishi Sunak, struck a deal with the EU on trading arrangements for Northern Ireland, officially known as the Windsor …
3rd March 2023
Another inflation surprise… The focus this week was on yet another higher-than-expected inflation print. The headline inflation rate edged down in February, but only to 8.5%, whereas a much bigger fall had been anticipated. And the core measure rose …
Russia’s economy defied expectations in 2022 Russia’s war in Ukraine, which marks its one year anniversary this week, fundamentally changed the geopolitical and economic landscape in the region. From a macroeconomic perspective, one of the more surprising …
24th February 2023
The more hawkish tone in financial markets this week is justified. Prior to this week, investors seemed to be optimistic that the previous increases in interest rates would be enough to bring inflation back down to the Bank of England’s 2.0% target, and …
After the US and the UK, it was the euro-zone’s turn to release better-than-expected activity data this week. Admittedly, we learned that German GDP fell by 0.4% q/q rather than 0.2% in Q4. This means the euro-zone economy probably stagnated in Q4 …
In a previous edition of the UK Economics Weekly we said that the CPI core services inflation and private sector pay figures released this week would prove pivotal in determining whether the Bank of England raises interest rates further or calls time on …
17th February 2023
Tough times ahead for CEE, after Q4 contraction … Q4 GDP data released across Central and Eastern Europe (CEE) this week were a mixed bag, but show that the regional slowdown at the end of 2022 was (broadly) as we had anticipated. We now know that the …
The ECB’s doves have been pretty quiet for the past few months, but Fabio Panetta – who is probably the most influential one these days – gave a moderately dovish speech this week. Among other things, he suggested that inflation may already have peaked. …
It doesn’t really matter if the economy was in recession last year or not (although according to the technical definition it was not). (See here .) Two other factors are more important. First, recession or no recession, the economy is weak. Real GDP …
10th February 2023
Hawks singing the same tune At February’s ECB meeting, policymakers were unwilling to commit to raising interest rates further beyond the promised 50bp hike in March. But their comments this week show a clear intention to do so. Table 1 summarises some …
With the dust now settled after yesterday’s ECB meeting, it is clear investors have stuck with their dovish interpretation of the decision. They now expect the deposit rate to peak at around 3.4%, rather than 3.6%. (See Chart 1.) Meanwhile, 10-year …
3rd February 2023
Turkish policymakers deepen de-dollarisation Turkish policymakers deepened their “lira-isation” drive this week by increasing the incentive for firms to convert their FX into lira, but we’re not convinced that the policy changes will be successful and …
27th January 2023
Outlook better, but still bad There has been a marked improvement in sentiment towards the euro-zone recently as activity indicators have come in stronger than expected. Euro-zone GDP now looks likely to have flat-lined in the fourth quarter and January’s …
Whither the Norwegian krone? Norway’s position as a major oil and gas exporter means that movements in its currency are typically correlated with moves in energy prices. But since the start of 2021, the krone has failed to keep pace with the rise in oil …
The recent persistence of inflation leads us to think that the Bank of England will proceed with another 50 basis point (bps) rise in Bank Rate, from 3.50% now to 4.00% next Thursday. (See here .) We will be discussing the policy outlooks for the BoE, the …
CPI inflation is falling and the Bank of England Governor, Andrew Bailey, sounded optimistic this week when he said that “a corner had been turned on inflation”. But he and most other Monetary Policy Committee (MPC) members will probably still be …
20th January 2023
The improvement in recent data and brightening outlook continues to be the key talking point for euro-zone-watchers. In brief, it looks as if euro-zone GDP may not have contracted in Q4 2022 after all, and the prospects for this year have brightened …
It’s remarkable that the economy appears to have avoided a recession (defined as two consecutive quarters of falling real GDP) in 2022. Most economists thought that the recession began in Q2 2022 as back in August the ONS estimated that real GDP fell by …
13th January 2023
After months of gloom, there seems to be some newfound optimism about the euro-zone’s economic prospects. Commentary about the euro-zone economy has turned more positive. And this year’s rally in euro-zone financial markets probably at least partly …
The past few weeks have brought the news that the UK economy is lagging even further behind its G7 counterparts. (See here .) One reason for this relative underperformance is real business investment, which accounts for 9.5% of real GDP and in Q3 was …
6th January 2023
The narrative surrounding Europe’s energy crisis has completely shifted in recent weeks as warmer-than-normal winter temperatures have reduced heating demand and pushed gas prices down sharply. This will help to improve external positions and lower …
Inflation is on its way down Headline inflation in the euro-zone has probably passed its peak. (See here .) Admittedly, core inflation rose to a new record high in December, with both services and core goods inflation increasing in y/y terms. Core goods …
This week we learned that the economy contracted by more than we previously thought in Q3. The 0.2% q/q fall in real GDP in Q3 was revised down to a 0.3% q/q decline. More striking is that real GDP was a huge 6% below our pre-pandemic forecast in Q3. …
23rd December 2022
A ceiling agreed but with lots of caveats We don’t think the EU announcement of a cap on wholesale gas prices from February next year will have any practical impact. At first sight, the mechanism looks like a big deal. The ceiling of €180/MWh is much …
22nd December 2022
