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While raising rates by 50 basis points (bps) today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but perhaps via two 25bps increases rather than one 50bps rise. …
2nd February 2023
Peak rate still some way off Whereas the Bank of England and (arguably) the Fed delivered dovish surprises over the past twenty four hours, we think the ECB’s statement does not amount to a clear change in the policy stance. The 50bp hike today was almost …
Rates closing in on their peak, but rate cuts unlikely to come until 2024 While raising rates by 50bps today, from 3.50% to 4.00%, the Bank of England implied that rates are very close to their peak. We still think that rates may rise to 4.50%, but …
Concerns over democratic backsliding and an escalation of the Israeli-Palestinian conflict associated with Israel’s new far-right government won’t necessarily mean that foreign investment into Israel dries up or that the economy suffers in the short run. …
1st February 2023
Headline inflation to fall sharply, but core rate will be sticky January’s drop in headline inflation should be taken with a pinch of salt because a “data processing problem” meant that the data for Germany had to be estimated and might therefore be …
Unemployment steady as the labour market remains tight The euro-zone unemployment rate was unchanged at 6.6% in December but is likely to increase over the coming months as the economy falls into recession. That said, the increase will probably be …
Headline inflation to fall sharply, but core rate will be sticky January’s bigger-than-expected decline in headline euro-zone inflation should be taken with a big pinch of salt because a “data processing problem” at Germany’s statistics office meant that …
High mortgage rates maintain downward pressure on prices Given very stretched mortgage affordability, it was unsurprising to see house prices continue to decline at the beginning of 2023. The fall in house prices since their peak last August grew to 3.2% …
While we expect employment to weaken, it’s happening at a glacial pace. That feeds into our view that once interest rates peak (perhaps at 4.50% up from 3.50% now) they will stay high for all of this year. Employment rose by 27,000 between August and …
31st January 2023
We think that the euro-zone will enter a recession in the first half of this year and then experience a slow recovery. Our new GDP forecasts show a 0.5% contraction in 2023 and growth of only 0.8% next year. Data released this morning confirmed that the …
Early data indicate that German offices saw the steepest increases in yields on record in late 2022. And we think that with policy rates set to go higher, it is too early to rule out further rises in 2023. That suggests a peak-to-trough fall in German …
Approvals fall to their lowest since 2009 A further slump in mortgage approvals in December, to the lowest level since the height of the pandemic, confirmed that the extremely high cost of mortgage borrowing has caused more buyers to withdraw from the …
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this …
Recession likely in first half of this year The small increase in euro-zone GDP in Q4 was better than we feared a few months ago but the economy excluding Ireland still flat-lined. As the data deteriorated towards the end of the quarter and tighter …
Further weakness in bank lending to come Much like the latest money and credit data, the Q4 Bank Lending Survey painted a much more downbeat picture of economic prospects than the latest business surveys. Banks are tightening their lending standards and …
Drag from higher interest rates intensified in December December’s money and credit figures revealed that higher interest rates further dampened economic activity at the end of last year. Moreover, the drag on activity will continue to intensify this year …
Economy likely to contract in first half of 2023 The small increase in France’s GDP in Q4 last year was worse than it first appears as household consumption fell sharply and investment growth slowed. It looks as if a (mild) recession in the first half of …
We think China’s PMIs picked up in January as its COVID wave ebbed (01.30 GMT) Euro-zone GDP probably flatlined in the fourth quarter… (10.00 GMT) …and economic growth may have weakened in Mexico and the Czech Republic Key Market Themes The Fed , ECB …
30th January 2023
The shift away from floating-rate to fixed-rate mortgages presents risks as well as benefits. It will protect homeowners who are lucky enough to have a long time remaining on their fixed rate contract from higher mortgage payments. But that reduces the …
While an improvement in appetite for risk has fuelled a strong start to 2023 by UK equities and sterling, we doubt this will remain a source of support as recessions in the US, the UK and the euro-zone economies take hold. We anticipate the FTSE 100 …
Sentiment up, price pressures coming off the boil but still strong The improvement in economic sentiment in January is consistent with the picture painted by other surveys. But the high level of firms’ selling price expectations shows that the ECB’s …
Sharp slowdown in Q4, but sentiment improves further in January Economic sentiment in Central and Eastern Europe picked up again in most countries in January and our regional-weighted measure hit a four-month high. We still think that GDP in most …
Recession not off the table yet The fall in German GDP in Q4 shows that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
A Q4 fall in GDP The 4.9% increase in Polish GDP over 2022 as a whole is consistent with a slowdown in growth to around 1.6% y/y in Q4 and a small quarterly decline in output of around 0.5% q/q, confirming that the economy slumped towards the end of the …
Recession not off the table yet The fall in German GDP in Q4 suggests that the energy crisis started to dent activity at the end of last year. This pours cold water on the recent optimism about the prospects for the euro-zone and suggests that a technical …
A streak of stronger-than-expected economic data in the euro-zone has given markets there a boost this year. But with much of the good news seemingly already discounted, and, in our view, a still hawkish ECB, we expect rallies in equities and government …
27th January 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 …
Yields have continued to surprise on the upside, with the all-property equivalent yield rising by 106bps in the three months to December. That matches the worst months of the GFC, and even though rental growth has held up capital values ended the year …
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 …
The reversal of temporary subsidies and changes to weightings will probably push headline German HICP inflation back up in January. But the bigger picture remains that the headline rate will fall sharply this year and that the ECB will continue to focus …
Euro-zone investment contracted sharply in Q4 2022 and we think further interest rate rises will prolong this weakness throughout much of this year. But we expect a recovery in transactions towards the end of the year, when economic activity should be …
December’s euro-zone money and credit data show that the effects of rising interest rates were starting to be felt. Households and firms shifted their money into longer-term deposits which are less likely to be spent, and lending growth slowed. Overall, …
GDP up in Q4, but still struggling to reach past peaks Spain’s GDP increased in Q4 and is performing better than we expected only a couple of months ago. But Spain is still a laggard in Europe, with the economy smaller than it was before Covid. We think …
Although we think there is still a decent case for UK equities to continue outperforming those in the US over the next few years, we don’t expect the UK’s stock market to perform significantly better than stock markets in the euro-zone over that period, …
26th January 2023
Overview – 2023 will be the most difficult year for the housing market since 2008. Mortgage rates remain very high by the standards of recent years and can’t drop materially until the Bank of England shifts from raising interest rates to cutting them. …
A 50bp rate hike next week seems to be literally a done deal. The recent strength of the economy means ECB will hike further. Quantitative tightening looks set to accelerate from June. With a 50bp rate hike at next week’s ECB meeting seemingly a done …
Despite some good news, another 50bps rate hike is most likely Next phase will be MPC pausing to assess influence of higher rates, but we’re not there yet Next big surprise may be that rates are cut by more than investors expect in 2024 Another 50 basis …
Occupier demand contracts further as the economy slows The slowing economy led to a further fall in occupier demand in Q4, with retail seeing the largest contraction. So far, the fall in rental expectations has been relatively modest and surveyors expect …
S ince the end of last year, developments have been more positive in the retail sector. However, we still think 2023 will be a difficult year. The weak outlook for consumer spending and more spending online and in out-of-town shops point to rising high …
25th January 2023
Recession might be avoided, but outlook still poor The further increase in the Ifo Business Climate Index in January confirms that the recovery in German business sentiment that started at the end of 2022 has continued this year. But the fall in its …
Recession might be avoided, but outlook still poor The renewed increase in the Ifo Business Climate Index in January confirms that the recovery in German business sentiment that started at the end of 2022 has continued this year. But the fall in its …
We expect the Bank of Canada to hike by 25bp… (15.00 GMT) … and clients can register here for our Drop-In following that decision (17.00 GMT) We think rates will be raised by 25bp in Thailand and be left on hold in Sri Lanka Key Market Themes Today's …
24th January 2023
As 2023’s calendar of central bank meetings began, we held a special briefing on the first Federal Reserve, European Central Bank and Bank of England policy decisions of the year. Chief Global Economist Jennifer McKeown lead a discussion with economists …
A closer look at Spain’s inflation data shows that there are significant measurement difficulties affecting both energy and core price data. However, we still expect measured headline inflation to remain lower in Spain than in most of the euro-zone and …
Recent data have shown that activity in the US is weakening as we had expected while that in the euro-zone has been surprisingly resilient. The resilience seems to reflect a combination of supply and demand factors, including easing shortages, lower gas …
Interest rate cuts still some way off Hungary’s central bank (MNB) left its base rate on hold today, at 13.00%, and we don’t think that it will cut its main policy interest rates until late-2023. In the meantime, we expect that the MNB will continue to …
