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It is hard to say which is more remarkable: that GDP growth accelerated last year following the Fed’s most aggressive tightening campaign in decades, or that core inflation nevertheless fell back to the 2% target in annualised terms over the second half …
26th January 2024
The outlook for monetary policy all depends on whether the Bank of Canada is willing to act based on where it thinks shelter inflation is heading, rather than its current rate. The Bank’s communications suggest it is starting to move in that direction, …
Seven months of annualised core inflation at target The December income and spending data confirm that core PCE inflation has been running at an annualised pace in line with the Fed’s 2% target for seven months now. This reiterates the message that there …
In last week’s UK Economics Weekly we highlighted the lingering upside risks to inflation, which were emphasised in this week’s release of January’s flash PMIs. (See here .) But this week, we need to talk about the risk of deflation. We’ve been …
Tokyo inflation won’t remain below 2% for long At its meeting on Tuesday, the Bank of Japan sounded increasingly confident that it will be able to meet its 2% inflation target on a sustained basis. And the minutes of the Bank’s December meeting released …
Much ado about nothing The headlines this week were dominated entirely by the Australian government’s decision to redesign the Stage 3 income tax cuts that are due to take effect on July 1 st . The long and short of it is that the government wants to …
Plunge in inflation casts doubt on ending of ultra-loose monetary policy The plunge in inflation to well below 2% in Tokyo last month was broad-based, casting doubt on the Bank of Japan’s willingness to end negative interest rates. Headline inflation …
25th January 2024
The Q4 RICS survey suggested that occupier and investment sentiment remained pessimistic in Q4. We expect sentiment will be subdued in at least the first half of 2024, with credit conditions staying tight and growing signs of distress, particularly in the …
London house prices were more resilient in 2023 than we had expected, falling by 2.4% y/y in Q4 close to the national average of -2.3% y/y. London is more reliant on mortgaged buyers than other regions and the deterioration in affordability due to high …
A reversal of the earlier boost from unseasonably mild December weather probably weighed on non-farm payroll growth in January. We expect a more muted 150,000 increase. The annual benchmark revisions should also show a weaker pace of employment growth …
New home sales regain some momentum New home sales rebounded in December, reversing nearly all of their decline in the previous month when mortgage borrowing costs were much closer to their 8% peak. The 8.0% m/m increase in seasonally adjusted new home …
This is a special Global Economics Chart Pack that provides clients with key analysis to make sense of the macro and market impact of the disruptions to maritime shipping. The charts in this document come from our brand-new shipping dashboard , which …
What landing? Although GDP growth came in hotter than expected in the fourth quarter, underlying inflation continued to slow, with annualised core PCE inflation running at the 2% target in the fourth quarter. The upshot is that an early spring rate cut by …
Minor improvements in all sectors, but very gradual recovery ahead Having deteriorated for the best part of 2023, sentiment over all-property occupier demand and rents improved in Q4. However, the balances remain negative, pointing to subdued demand and …
Our new Fiscal Headroom Monitor uses a simplified version of the Office for Budget Responsibility’s (OBR’s) model to estimate how changes in market interest rate expectations and gilt yields are influencing the scope for the government to announce new …
We held a 20-minute online briefing this week to discuss our new forecast for the US housing market in 2024. You can watch the recording of the “drop-in” here . This Update recaps our answers to the most asked questions from clients and provides answers …
Norges Bank today reiterated that it will leave its policy rate at 4.5% “for some time”. But we think that inflation will fall rapidly this year, so when the Bank does start to cut rates, it will do so more quickly than its forecasts suggest. The decision …
We’ll be discussing the outlook for Fed, ECB and Bank of England policy in a 20-minute online briefing at 3pm GMT on Thursday 1 st February. (Register here .) No one to vote for a rate hike and tightening bias to be dropped Bank to push back against …
January’s flash PMI surveys suggest that GDP growth in advanced economies ticked up from a very weak pace at the start of 2024. And with price pressures still strong, central banks will probably continue to push back against expectations for rate cuts in …
24th January 2024
The Bank of Canada’s decision to drop its tightening bias today is the first step toward interest rate cuts, particularly as the Bank also hinted that it may be willing to look through elevated mortgage interest costs and rent inflation. We continue to …
March rate cut is data dependent Rate expectations have rebounded Officials need to see more evidence that disinflation will be sustained We think that evidence is coming, paving way for a March rate cut At next week’s FOMC meeting, we don’t expect the …
Bank drops its hiking bias The Bank of Canada’s decision to drop its tightening bias today is the first step toward interest rate cuts. We continue to think that the Bank’s forecasts for the economy are too optimistic, and that inflation will slow faster …
This page has been updated with additional analysis since first publication. Lingering evidence of sticky services inflation may continue to concern the BoE The small rise in the composite activity PMI, from 52.1 in December to 52.5 in January, suggests …
Property yields rose further in Q3, but with risk-free rates now falling back, we think they will stabilise in the first quarter of 2024. But given historically narrow yield spreads, we doubt we will see much yield compression ahead either. As the economy …
This page has been updated with additional analysis since first publication. Positive signs for this quarter The composite PMI rose for the second consecutive month in January, driven by rises in both manufacturing and services components. And with the …
This page has been updated with additional analysis since first publication. Export growth will be sluggish this year The trade deficit widened in December as import values rose more strongly than export values. But the weakness in net goods trade will be …
This page has been updated with additional analysis since first publication. Inflation continues its rapid descent With inflation falling rapidly, risks are tilted towards the RBNZ cutting rates sooner than Q3, as we’re currently predicting. Consumer …
23rd January 2024
The new cap on international student visas is another reason to expect population growth to slow sharply. That will give the Bank of Canada confidence that CPI rent inflation will ease later this year, providing a clearer path for headline inflation to …
Central banks will probably continue to push back on expectations of rate cuts at their scheduled policy announcements in the coming weeks. But with inflation and wage pressures clearly moderating, we still think the Fed, ECB and Bank of England will cut …
History suggests that when one Monetary Policy Committee (MPC) member votes to cut interest rates, a majority of the nine members will agree about two meetings later. There have been 14 turning points in Bank Rate since the MPC’s inception in 1997, by …
The Bank of Japan sounds increasingly confident that it will be able to achieve its inflation target on a sustained basis. With Mr Ueda at the post-BOJ-meeting press conference again emphasising the importance of the spring wage negotiations, we think the …
This page has been updated with additional analysis since first publication. More wiggle room for a pre-election splash December’s better-than-expected public finances figures brought some cheer for the Chancellor after the recent run of poor outturns and …
Policy normalisation is in sight Although the Bank of Japan stood pat at its meeting today, we’re sticking with our view that policymakers will soon call time on negative rates. The Bank’s decision to leave its policy rate unchanged at -0.1% was correctly …
While Australian households are as indebted as ever and mortgage payments have hit fresh record-highs, lending standards continue to be sound, loan defaults remain subdued and banks are well capitalised. Accordingly, there’s no compelling case to tighten …
We expect evidence of distress to ramp up this year as loan extensions end. Many borrowers will be forced to either inject new capital, return assets to lenders or sell into a soft market. Those assets returned to lenders will also ultimately end up on …
22nd January 2024
If we are right to think that the Bank of England will begin lowering interest rates in June, the recent fall in mortgage rates should be sustained. The resulting drop in the cost of borrowing will boost demand as some first-time buyers who put their …
As core PCE inflation is on track to return to the 2% target by the middle of this year, we expect the Fed to cut interest rates by 25bp at every meeting from March onwards, with rates eventually falling to between 3.00% and 3.25% in early 2025. The …
Why are markets pushing back on rate cut expectations? How will the ECB play its upcoming meeting? What’s really happening to China’s economy? Group Chief Economist Neil Shearing tackles the big macro and market questions in our latest episode of The …
19th January 2024
We argued last week that there was little to support the idea that the “last mile” of getting inflation back to 2% will somehow be the hardest. But new data on rent inflation released this week raise the possibility that the disinflationary process won’t …
2023 saw the lowest number of existing home sales since 1995 A drop in existing home sales in December confirmed that they fell by 20% y/y in 2023 as a whole to their lowest level since 1995. (See Chart 1.) Lack of supply was the main reason existing home …
Falling inflation finally providing a boost to confidence The surge in the University of Michigan measure of consumer sentiment in January indicates that recent sharp declines inflation are finally feeding through, although we doubt this signals an …
There was little for the Bank of Canada to be encouraged by this week, with evidence of a further deterioration in the economy yet little sign of a fall in inflation expectations or downward pressure on core inflation. That puts the Bank in a tricky …
Retail sales volumes rose strongly last quarter Retail sales were weaker than expected in November, but earlier gains and the strong preliminary estimate for December still suggest that sales volumes grew substantially over the fourth quarter. The latest …
This week’s data releases called into question our forecast that the UK economy will experience a soft landing, by which we mean inflation falling back to the 2.0% target without a big contraction in GDP. Could cigarettes and containers ignite the CPI? …
This page has been updated with additional analysis since first publication. Bleak end to a dismal year, but a better 2024 awaits The 3.2% m/m fall in retail sales volumes in December was far worse than expected (consensus forecast -0.5% m/m, CE -1.0% …
Disinflation unlikely to stall Earlier this week, we learnt that new dwellings commencements continued in a tailspin, with housing starts falling to a 11-year low of 37,000 in Q3. That led some commentators to sound the alarm on how the resulting …
Note: Join us on our upcoming Asia Drop-in on 25th January. We’re discussing China’s missing stimulus, the Asian monetary policy outlook and much more. Register here for the 20-minute online briefing. Inflationary pressures moderating Inflation fell to an …
