Heteronomics Archive

March 13, 2024

UK Recession Ends Before It Begins

UK GDP rebounded by 0.2% m-o-m in January 2024, as expected. The retail sector’s seasonal adjustment issue from December was already known to have unwound.
We currently see GDP growth of 0.3% q-o-q in Q1, restoring the level broadly held since 4Q22. January’s rebound means the recession ended before its February declaration.
This was never a recessionary regime that could crush inflationary pressures. Its likely end stops that risk from developing, negating that potential need for an early rate cut.

By Philip Rush

March 12, 2024

UK unemployment increased in January 2024, contrary to the consensus, but tracking the rise we forecast for Q1. However, this looks like more than just residual seasonality.
The underlying changes signal slightly higher unemployment. Meanwhile, vacancies are falling after their seasonal rebound, and redundancies are off their lows.
Wage growth was also slightly softer than expected. Resilient pay settlements should limit how much further these data slow, postponing rate cuts relative to market pricing.

By Philip Rush

March 11, 2024

The UK ONS published the inflation basket weights that will apply for the rest of 2024. Once again, they suspiciously serve to exaggerate the short-term disinflation story.
Airfares now only have a slightly higher weight than in 2023 after more than doubling for January’s seasonal drop. Energy utility bills regain some weight ahead of price cuts.
RPI weights only change once annually, representing a different consumer and period. They raise 2024’s RPI inflation while the CPI outlook slows, expanding the CPI-RPI basis.

By Philip Rush

March 07, 2024

The ECB unanimously maintained its policy rates and did not even discuss cuts despite this meeting being dovishly priced as starting a cutting cycle until recently.
April is effectively ruled out, barring a crisis, with weakening wages needed to justify a June start. Resilient services inflation may mean wage costs are not benign enough.
Although we believe the ECB expects to cut in June, we still expect resilience to delay that first move to September. A high neutral rate would also limit and slow cuts.

By Philip Rush