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Will the FOMC’s September meeting confirm that the Fed is done with tightening? Will the ECB and Bank of England take rates higher? Will accompanying language give any hints about how long rates will stay elevated? Economists from our US, Europe and UK …
7th September 2023
According to Halifax, house prices are up by 20% compared to 2019 even after their recent falls. But adjusted for inflation they slipped to a seven-year low in August. High mortgage rates point to a further fall in prices in both real and nominal terms. …
Largest annual fall since 2009 The steep fall in the Halifax House Price Index in August confirmed that the further leg down in house prices we have been forecasting has materialised. If we are right to think that mortgage rates will remain around current …
Fall in German industrial production even worse than it looks Aggregate German industrial output fell sharply again in July and the fall was even larger if the construction and energy sectors are excluded. We expect production to drop further in the rest …
The latest real estate data suggest that the current drop in capital values in the euro-zone will be as bad as the post-GFC correction. But market sentiment has been less negative this time, particularly for occupiers, which we think largely reflects the …
6th September 2023
The higher share of floating rate mortgages in Italy and Spain means that household interest spending in both countries has risen much further than in Germany and France. Interest spending is also set to keep rising much more quickly in Italy and Spain in …
The German government is unlikely to announce the kind of big stimulus package that some are calling for. However, fiscal policy will remain much more supportive than it was before the pandemic. The German economy has struggled since the pandemic. In Q2, …
NBP starts it easing cycle with a bang The National Bank of Poland (NBP) kicked off its easing cycle today with a much larger-than-expected 75bp cut to its main policy rate, to 6.00%. We will firm up new interest rate forecasts after Governor Glapinski’s …
This page has been updated with additional analysis since first publication. Edge down points to period of weakness Euro-zone retail sales fell in July and, in our view, will keep declining over the rest of the year as the effects of tighter monetary …
Sharp falls in inflation mean that the economies of Central and Eastern Europe (CEE) are on the cusp of a broad-based monetary loosening cycle. That said, we think that the legacy of the inflation shock over the past two years will be more persistent …
5th September 2023
The adoption of remote work meant central London was left out of the COVID-19 house price boom. But with house prices in outlying towns and rural areas around the capital starting to stagnate too, there are tentative signs that the relative …
Final PMIs underline that outlook has deteriorated The final PMIs published today were revised down from the already-low levels reported in the flash measure two weeks ago. The Services Business Activity PMI slumped compared to July, and although the …
The Bank of Israel (BoI) left its policy rate on hold again today, at 4.75%, and while our baseline forecast is that the tightening cycle is now over, the BoI’s hawkish comments support our view that it won’t turn to interest rate cuts until Q2 next year …
4th September 2023
Swiss economy set to continue flatlining Weak manufacturing and investment weighed on the Swiss economy in Q2, leaving GDP unchanged from the previous quarter. We think activity will be sluggish for the rest of the year as the effects of monetary …
The news that the UK economy may now be 1.5% bigger than its Q4 2019 pre-pandemic size, rather than 0.2% smaller, suggests the economy has been much stronger than we previously thought. But with the UK still likely to be suffering from a labour supply …
1st September 2023
Rising gas prices doesn’t mean energy crisis is back Wholesale European natural gas prices jumped more than 20% in the early part of this week and have been highly volatile recently, but this doesn’t mean the energy crisis in the region is coming back to …
This week the Bank of England’s Chief Economist, Huw Pill, indicated that while the Bank still had to “see the job through” and remain vigilant with “stubbornly high inflation”, he didn’t think interest rates need to rise much further from 5.25% now. But …
Core inflation heading down August’s inflation data, published this week, increase our confidence that the core rate has passed its peak. Core goods inflation is clearly on a downward trend and has much further to fall as lower energy prices and improved …
This page has been updated with additional analysis since first publication. Weak PMIs in CEE, but further evidence of Russia overheating The manufacturing PMIs for August suggest that industrial sectors in Poland, Czechia and Turkey remained in the …
This publication has been updated with additional analysis. Inflation unchanged, set to stay below 2% Switzerland’s headline inflation rate was unchanged in August as a fall in core inflation was offset by the impact of rising fuel prices. This is the …
The repayment of ECB TLTROs by banks has gone smoothly so far and we expect the rest of the TLTROs to be repaid by the end of 2024 without significantly affecting financial conditions or interest rates. That said, the replacement of TLTROs with short-term …
31st August 2023
Turkey’s policy shift has ticked a lot of the right boxes so far and the central bank’s large rate hike this month will go a long way to rebuilding confidence among investors. But there are still question marks about how much tightening will be delivered …
While the macro backdrop was broadly unchanged, rents were stronger and yields were higher than expected in Q2, forcing us to re-examine our 2023 real estate view. As a result, we have edged down our end-year all-property view for capital values. This now …
We’ve become a bit more confident in our forecast that the Bank of England will raise interest rates from 5.25% now to a peak of 5.50%, rather than much further, as higher interest rates appear to be weighing more heavily on activity. The peak in UK …
Double-digit inflation will prevent September rate cut The fact that Polish inflation remained in double-digits in August, at 10.1% y/y, means that an interest rate cut at the central bank’s meeting next week now seems very unlikely. That said, we think …
This page has been updated with additional analysis since first published. Signs of softening activity at the start of Q3 The latest activity data for Russia for July suggest that retail sales maintained solid momentum while industry has come off the boil …
30th August 2023
Stronger-than-expected inflation data from Germany and Spain today add to the uncertainty surrounding the near-term path of ECB policy. On balance, we think that the ECB will raise rates once more in this cycle and that government bond yields will fall by …
A strong rebound in tourism has bolstered retail rents in Spain and Portugal over recent quarters. However, we think this boom has run its course. Alongside a weak domestic consumer outlook, this should keep Iberian retail rents subdued for the rest of …
This page has been updated with additional analysis since first publication. Sentiment rebounds, nascent recovery may be underway The European Commission's Economic Sentiment Indicators for Central and Eastern Europe (CEE) generally rose in August and …
Renewed surge in mortgage rates begins to take its toll The decline in mortgage approvals to a five-month low in July showed the renewed surge in mortgage rates since April has begun to take its toll. But given the lag between quoted mortgage rates and …
This page has been updated with additional analysis since first publication. Euro-zone sentiment weakens further The decline in the euro-zone’s Economic Sentiment Indicator (ESI) in August leaves it consistent on past form with GDP stagnating at best in …
This page has been updated with additional analysis since first publication. Higher interest rates are weighing more heavily on lending The drag on bank lending from higher interest rates grew further in July, particularly in the housing market. We think …
Absent major fiscal stimulus in China, global steel demand growth will be weak in the next few months. Accordingly, we forecast price declines in major steel markets towards year-end. Only when economic growth recovers and interest rates fall do we see …
29th August 2023
This page has been updated with additional analysis since first publication. MNB cuts rates again, but a short pause in the easing cycle may be coming The Hungarian central bank (MNB) announced another 100bp cut to its quick deposit rate (the key policy …
It has generally been a positive week for commodity prices. Most metals and agricultural prices rose on the week, in somewhat of a turnaround from recent trends. By contrast, energy commodities fell for the second consecutive week, as concerns about the …
25th August 2023
CBRT policy shift now firmly back on track There’s a lot of confusion about what drove Turkey’s central bank to deliver an unexpected 750bp rate hike this week and doubts remain about the policy U-turn. But at this point we’re minded to focus on the …
Worries that Germany is becoming the “sick man of Europe” again have resurfaced over the past few weeks. The term was first used in relation to Germany in 1999, at a time when it had been growing much more slowly than countries such as France and Spain …
This week’s bigger fall in UK rate expectations, bond yields and the exchange rate compared to elsewhere is largely due to the markets deciding that a weaker economy will trim inflation, meaning the Bank of England has less work to do. Market pricing is …
Our forecast that the Bank of England won’t start cutting interest rates until the second half of 2024 means mortgage rates are likely to stay between 5.5% and 6.0% for the next 12 months. While transactions volumes have only seen a modest decline so far, …
Denmark’s economy has been among the fastest-growing since the pandemic and, although growth will slow in the coming months, we expect it to continue outperforming the euro-zone. Nonetheless, the DNB will probably keep its policy rates below those of the …
24th August 2023
CBRT delivers a shock interest rate hike The Turkish central bank’s much larger-than-expected 750bp interest rate hike, to 25.00%, at today’s meeting will go a long way towards reassuring investors that the shift back to policy orthodoxy is on track. The …
Having risen in value by much less than houses over the past three years, flats were selling at the biggest discount to houses on record at the beginning of the year. But higher mortgage costs are causing buyers to reassess what they can afford to buy, …
The German retail market has been one of the weakest in Europe since the beginning of 2022 and rental performance so far in 2023 has been well below the euro-zone average. But, with consumer confidence and high street footfall improving, vacancy …
The weaker-than-expected PMI data from European economies is consistent with our view that the euro and sterling will fall further against the dollar over the next couple of months. Earlier today, PMI data for August out of the euro-zone and UK came in …
23rd August 2023
The increase in the spot and particularly futures prices of European natural gas in the past few weeks suggests that there is an upside risk to our forecast for euro-zone inflation next year. However, prices would need to rise much further to …
Our latest Europe commercial property valuation monitor is embedded below: Property yields rose across all sectors and markets in Q2. However, this was somewhat offset by rises in bond yields in most countries. As a result, valuations remain stretched in …
This page has been updated with additional analysis since first publication. Higher interest rates dragging the economy into recession The fall in the activity PMI to below the boom-bust level of 50.0 in August supports our long-held view that the economy …
In an environment in which firms feel able to pass on higher energy costs in their selling prices, the latest leap in wholesale gas prices poses an upside risk to our forecast for core CPI inflation to fall to 2.0% by the start of 2025 and to our forecast …
This page has been updated with additional analysis since first publication. Germany leading euro-zone into recession August’s flash PMIs were worse than expected, particularly in Germany, and are consistent with our view that the euro-zone economy will …
