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We think Japan’s headline CPI inflation rose to a four-decade high in January (23.30 GMT) US income and spending data is likely to show a strong rebound in consumption (13.30 GMT) We expect headline and core US PCE price indices to have risen by 0.5% …
23rd February 2023
The recent resilience of economic activity has left us comfortable with our view that the Bank of England will raise interest rates from 4.00% now to a peak of 4.50%, rather than to 4.25% as analysts expect, and keep rates at that higher level all year. …
Higher interest rates have begun to reduce the size of mortgage that buyers take out. As two-thirds of buyers rely on a mortgage, that will decrease most buyers’ budgets and put further downward pressure on house prices. The average mortgage rate on …
Investment prospects remain weak despite Q4 jump Private investment picked up firmly last quarter and although firms expect capital spending to remain relatively healthy, their projections are consistent with a slowdown in real terms this financial year. …
Fed relatively dovish, but Feb announcement pre-dates run of stronger data The minutes of the Fed’s late-January/early February FOMC policy meeting look relatively dovish, but that is mostly because that meeting pre-dated the run of incredibly strong …
22nd February 2023
Data for the fourth quarter showed a widespread deterioration in occupier demand in all three sectors. This was worst in some of the big six and West coast metros, with markets like Phoenix, Portland and San Jose joining San Francisco and Chicago in …
The January CPI data provided mixed signals about developments in underlying inflation. The CPI excluding food and energy and the CPI excluding the eight most volatile components each rose by just 0.1% m/m, which were the lowest gains since early 2021. …
Turkey’s central bank will probably cut its policy rate by 100bp (11.00 GMT) We think Mexico’s CPI edged down to 7.6% in the first half of February (12.00 GMT) We expect policymakers in Korea to keep interest rates on hold Key Market Themes We doubt …
There is mounting evidence that households’ pandemic savings will no longer be able to support real spending. That implies from now on, real consumer spending will have to evolve in line with real incomes. The conventional wisdom is that households and …
While it is in America’s strategic interests to build stronger economic ties with allies to counter China’s growth, its protectionist tendencies could undermine those goals and blunt the effectiveness of its interventionist foreign policy. Our work on …
German inflation mystery continues The final release of German HICP for January confirmed that the headline rate fell but, disappointingly, still didn’t reveal what happened to the core rate. That said, there was some evidence that underlying price …
Even though the Reserve Bank of New Zealand slowed the pace of tightening at today’s meeting, it still signalled a peak in the overnight cash rate of 5.50% by the middle of this year. Our more pessimistic forecasts for economic activity and wage growth …
Wage growth will peak at just below 4% With the risk of a wage-price spiral contained, we expect the RBA to start cutting interest rates by year-end. The 0.8% q/q rise in hourly wages excluding bonuses was below the analyst consensus of 1% and our own …
The higher bond yields that would follow abandonment of Yield Curve Control would make it more difficult to stabilise Japan’s public finances. But the long maturity of government debt means that the government’s interest rate bill would only creep up …
Bank will lift rates to 5.25% The RBNZ slowed the pace of tightening this month and we suspect it will now only lift the overnight cash rate to 5.25% instead of our previous forecast of 5.5%. The Bank’s decision to slow the pace of tightening from the …
Wage growth will peak around 4% Wage growth was weaker than the RBA had expected last quarter and we think it won’t accelerate as rapidly as the RBA anticipates. The 0.8% q/q rise in hourly wages excluding bonuses was weaker than the analyst consensus of …
The big sell-off in both equities and bonds that was a feature of 2022 has arguably created scope for them to fare a bit better in the coming years by reducing their valuations. Nonetheless, we don’t think they will provide spectacular returns over the …
21st February 2023
We think the RBNZ will hike rates by an above-consensus 75bp (01.00 GMT) Final German HICP data will offer more clarity on inflation’s drivers there (07.00 GMT) February FOMC minutes may give more insight into the Fed’s thinking (19.00 GMT) Key Market …
Sales fall, but at much slower pace The marginal decline in existing home sales in January supports our view that housing market activity is reaching a trough. But growing economic headwinds and stretched affordability mean sales will recover only …
The resurgence in activity and employment in January means that there is little chance of the economy falling into recession in the first quarter and we now expect GDP growth of 1.5% annualised. That said, the retail sales data in particular appear to …
Core prices rise at slowest pace in two years The much smaller rise in core prices in January suggests that headline inflation will fall faster than the Bank of Canada expects, reinforcing our view that the Bank is unlikely to resume raising interest …
PMIs suggest activity rebounded in February, but we doubt it will last The sharp rebound in the flash UK composite PMI in February suggests that the economy remained resilient to the dual drags from high inflation and high interest rates at the start of …
PMIs suggest activity rebounded in February, but we doubt it will last The sharp rebound in the flash UK composite PMI in February suggests the economy continued to remain resilient to the dual drags from high inflation and high interest rates. But we …
Tighter fiscal policy probably still on its way despite borrowing undershoot January’s public finances figures suggest the Chancellor will have scope for some giveaways in his Budget on 15 th March. But with the OBR poised to slash its medium-term GDP …
Tighter fiscal policy probably still on its way despite big borrowing undershoot January’s public finances figures suggest the Chancellor may have scope for some giveaways in his Budget on 15 th March. But with the OBR poised to slash its medium-term …
February readings reinforce dim economic outlook in Q1 February’s flash PMIs are broadly consistent with our downbeat narrative of the economy in 2023. The manufacturing PMI fell further due largely to a plunge in export orders, while a further rise in …
RBA isn’t done tightening just yet The minutes of the RBA’s February meeting, where policymakers lifted the cash rate by 25bp to 3.35%, confirmed the Bank’s pivot to a slightly more hawkish stance. In contrast to its December meeting, the Bank didn't …
Manufacturing downturn gathering speed According to today’s flash estimate, the manufacturing PMI fell deeper into contraction from 48.9 in January to 47.4 in February. The output sub-index fell to 44.9, the weakest reading since July 2020. Firms are …
The February composite PMI probably rose further above 50 in the euro-zone… (09.00 GMT) … and remained below 50 in the UK and the US We think CPI inflation was unchanged at 6.3% in Canada in January (13.30 GMT) Key Market Themes Those hoping for stellar …
20th February 2023
Being ranked by the Sunday Times as the top UK economic forecaster for 2022 is a great accolade and has generated a lot of interest in what we expect to happen next. Our forecasts for 2023 imply a tougher year than the consensus, with higher inflation …
This dashboard contains our forecasts for the US housing market and key macro indicators. If you have subscriber access to the data underlying this redesigned dashboard, you can download it via the menu options in the top right of each chart or table. If …
Yet another increase in core inflation The fall in the Riksbank’s target measure of inflation was largely due to a huge one-off drop in electricity prices but policymakers will focus more on the big increase in core inflation. This vindicates their recent …
While the recent economic data have surprised on the upside, property market indicators were broadly worse than expected in Q4. Occupier demand softened, particularly in the office and apartment sectors, as concerns about the outlook weighed on firms …
17th February 2023
Governor Tiff Macklem reiterated this week that the Bank of Canada wants time to assess the impact of high interest rates, suggesting it will not respond to the strength of employment by immediately resuming interest rate hikes. The weakness of home …
There are growing signs that stretched affordability is weighing on homeownership, particularly for the under 35s. We expect this to persist in the coming quarters. But there is a large pool of young adults waiting to purchase their first home once …
While more disinflation may yet benefit the US stock market by, for example, facilitating a renewed decline in TIPS yields and boosting profits from the rest of the world if accompanied by a weaker dollar, we don’t think it will prevent equities from …
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 …
Echoing the unexpectedly large increase in payroll employment last month, January’s retail sales and manufacturing output data were unquestionably strong too. Admittedly, retail sales appear to have been boosted by problems with the seasonal adjustment, …
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. …
This week’s data contained encouraging signs that inflationary pressures are fading, and the risks to our view that Bank Rate will rise to 4.5% this year now lie to the downside. The January MSCI data also included good news for investors, with …
Too soon to conclude that retail is coming out of its funk The rebound in retail sales in January was better than expected, had echoes of the leap in US retail sales and suggests that the festive/new year period wasn’t a complete write-off. But while …
2023 may be better than 2022 for retailers, but it will still be a struggle The 0.5% m/m rise in retail sales volumes in January was better than the consensus forecast of a 0.3% m/m decline (CE +0.5% m/m), echoes the leap in US retail sales earlier this …
The 11,500 drop in employment in January marked the second consecutive fall and we think it marks the beginning of a sustained period of labour market slackening. In annual terms, employment will still be up around 2.5% this quarter, but if our downbeat …
Export volumes fell again in January The 0.2% q/q rise in Q4 GDP was weaker than most had anticipated and is consistent with our view that the economy will do much worse this year than anyone expects. Indeed, the early indications are that economic …
UK retail sales volumes probably rose by 0.5% m/m in January (07.00 GMT) We think Russia’s GDP fell by 3.5% y/y in Q4 (16.00 GMT) Catch-up here on yesterday’s Drop-In on our UK economic outlook Key Market Themes The recent strength of the US dollar and …
16th February 2023
Starts fall back in January despite warm weather Single-family housing starts dropped back in January and the permits data add weight to our view that more weakness is to come. We think that starts will edge lower in the coming months, before an increase …
The Mexican peso’s outperformance since the start of 2022 has pushed up its valuation substantially, and we think that this leaves it vulnerable to sharp falls against the US dollar if, as we expect, the US economy falls into recession later this year. …
The UK avoided a recession last year partly because of more spending by households on restaurants and trains and partly because of more investment by businesses in aircraft, cars and cruise ships. This suggests the recovery from the pandemic cushioned …
