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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 …
17th February 2023
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. …
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 …
The surge in employment and rise in hours worked in January suggest that economic activity continued to expand at the start of 2023 and present clear upside risks to our forecasts for GDP growth. Nevertheless, we disagree with the market-implied view …
10th February 2023
Markets have continued to swing round to the Fed’s view that rate cuts are unlikely this year. We still believe that those cuts are coming, however, as economic growth disappoints and core inflation falls more rapidly than the Fed is expecting. Markets …
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 …
The main development of the week happened in the past few hours: the reported nomination of Kazuo Ueda as the next BoJ Governor. Our initial response is here . While analysts and investors are looking for clarity on Mr Ueda’s views, there is little to …
With trimmed mean inflation surpassing the Bank’s November forecast in Q4, the RBA turned more hawkish when it lifted the cash rate by 25bp on Tuesday. Today’s Statement on Monetary Policy shows that the Bank expects inflation to only touch the top end of …
The strength of the early January data appears to rule out the possibility of an imminent recession, but that won’t prevent inflation from continuing to fall sharply from here. Jobs report appears to justify Fed’s caution Fed officials seem to agree …
3rd February 2023
There were more mixed signals this week on how the economy is coping with higher interest rates. The GDP data suggest fourth-quarter growth was stronger than initially expected and the manufacturing PMI unexpectedly rose back into expansionary territory …
While the Bank of England raised interest rates by a further 50 basis points (bps) yesterday, from 3.50% to 4.00%, it hinted that if Bank Rate is not already at a peak, it is very close to one. As we unpacked in our “Drop-In” webinar on this week’s policy …
Regional utilities seek electricity rate hike Seven regional utility companies (of 10 in total) that together serve around 60% of Japan’s population have now applied to the government to raise the rates on their regulated electricity contracts with …
Recession denial in full effect The commentary this week dismissing the validity of the Conference Board’s leading indicator (see here ), which is currently giving an unambiguous recession warning, reminds us of the old quote from JK Galbraith that “faced …
27th January 2023
Governor Tiff Macklem stressed on Wednesday that the pause in the Bank of Canada’s tightening cycle is conditional on looser conditions in the labour market and a fall in inflation expectations. The CFIB Business Barometer showed evidence of both a day …
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 …
PM Kishida, demographic doomsayer In his speech on Monday kicking off the first Diet session of the year, PM Kishida proclaimed that it is “now or never” when it comes to addressing Japan’s demographic decline. To that end, he pledged to double spending …
The CPI-trim and CPI-median measures of core inflation will be revised up next month but that does not change our view that they will fall sharply over the first half of this year. We think the 25 bp hike from the Bank of Canada next week will mark the …
20th January 2023
The weakness of retail sales and manufacturing output over the final two months of 2022 has reignited market fears of a hard landing this week, with the Fed’s latest Beige Book acknowledging that activity appears to have ground to a halt. Admittedly, …
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 …
10-year JGB yield retreats from ceiling Following the Bank of Japan’s decision on Wednesday to keep its short-term policy rate and Yield Curve Control (YCC) settings unchanged, 10-year Japanese Government Bond (JGB) yields fell to as low as 0.37% that …
Real incomes rising despite soaring inflation The biggest news coming out of New Zealand this week was the resignation of Labour Party PM Jacinda Ardern. The conservative National Party is leading the polls ahead of the next election in October and has …
The December CPI data and the Bank of Canada’s quarterly business and consumer surveys, released next week, could have a big bearing on the policy outlook. For the Bank to pause after one final 25 bp hike this month, as we assume, it will need to see …
13th January 2023
Core CPI continues to moderate The 0.1% m/m decline in headline CPI in December was principally due to a 9.4% m/m drop in gasoline prices, but core consumer prices also increased by a more modest 0.3% m/m, extending the run of weaker monthly gains to …
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 …
Inflation strong, consumption resilient On balance, the economic data released this week are consistent with our view that the RBA has more work to do. For a start, inflation rose back up from 6.9% to 7.3% in November, with trimmed mean inflation reaching …
The resilience of the labour market is a risk to our view that the Bank of Canada will pause its tightening cycle after a final 25 bp hike this month, even as the slump in natural gas prices raises the chance that CPI inflation will fall faster than the …
6th January 2023
The data this week suggested that the weak global backdrop is being compounded by a deterioration in domestic activity, although the labour market still appears to be in good health. Domestic weakness adding to external headwinds The November trade data …
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 …
Q4 industry slump won’t prevent GDP rebound We warned in December that the surge in manufacturing inventories in the Tankan signals a sharp downturn in industrial activity. As it happens, industrial production only fell marginally in November. But that …
End of China’s zero-Covid to boost travel exports Media reports suggest that China will start to import Australian coal from April. We explained here why the impact on the economy should be modest. A more important development is the end of zero-Covid in …
This week brought further signs of slowing activity growth and falling inflation, trends we expect to intensify next year. Meanwhile, Congress has averted a government shutdown, but there appears to be a growing risk of another damaging stand-off over the …
23rd December 2022
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. …
One third of the rise in household net worth during the pandemic has now been reversed and the further fall in house prices in November points to another deterioration this quarter. Lower net worth, in turn, is a headwind to consumption in 2023. Net …
16th December 2022
We think the three main economic themes of 2023 will be falling inflation, peaking interest rates and recession. We explained these forecasts in detail in our recent UK Economic Outlook , which carried the title a “A tough year”. (See here .) In short, …
The Bank of Canada’s 50bp rate hike this week means that variable mortgage rates are now more than 400bp higher than the start of the year. This raises the risk that some will be forced to sell their homes, although there was little evidence of …
9th December 2022
If you haven’t started your Christmas shopping, you may not be alone. Both the CBI Distributive Trades Survey and the CHAPS spending data point to a fall in retail sales volumes in November. The BRC/KPMG Retail Sales Monitor, which has a somewhat …
The national accounts data provided two pieces of good news this week, with revisions to the historical series and stronger-than-expected third-quarter growth leaving GDP higher than expected. While some argue that this will cause the Bank of Canada to …
2nd December 2022
This week’s data releases showed that higher interest rates are starting to influence the economy. This means that at some point the Bank of England will have to start to think more about the appropriate level of interest rates rather than the pace of …
China’s EV push a major threat The 2.6% m/m drop in industrial production in October was the second consecutive fall. And while motor vehicle output rebounded from the plunge in September, it was still 16% below its 2019 level. Firms are still pinning …
Research from the Bank of Canada suggests that half of all variable-rate, fixed-payment mortgage holders have now hit their so-called trigger rates, which means their payments will rise. This is one factor weighing on spending, with retail sales volumes …
25th November 2022
Foreign visitor numbers jump but services struggle Japan received 461,000 foreign visitors in October (seasonally adjusted), almost double the September figure. This is helping businesses in accommodation and transport, which media reports say are …
The most eye-catching statistic published this week was the net migration into the UK of 504,000 people in the year to June 2022. That’s a record high. It continued the recent trend of net inflows from the non-EU and net outflows to the EU. And it …
Despite the resilience evident in the latest round of hard data, our recession tracker models suggest the odds of a downturn next year are still rising. Odds of recession rising Our recession tracker indicators all but guarantee the economy will contract …
23rd November 2022
As the dust settles on this week’s Autumn Statement, we take a step back and answer three key questions. (Clients can catch up on our detailed analysis and our Drop In webinar following Thursday’s fiscal event here and here .) With the economy entering …
18th November 2022
Although the data this week showed renewed rises in the annual rates of CPI-trim and CPI-median inflation in October, our calculations show that the timelier 3-month annualised measures both declined. That could persuade the Bank of Canada to drop down …
Media blaming weak yen and virus for Q3 GDP fall The economy shrank by 0.3% q/q in Q3 due to a surge in real imports, as well as disappointing private consumption and investment growth. Some media outlets have blamed the weak yen and COVID for the …
The big fiscal tightening set to be unveiled at the Autumn Statement on 17 th November is coming at a time when the economy is probably already in recession. And the fiscal consolidation, rumoured to be worth a total of £54bn (1.9% of GDP), could risk …
11th November 2022
