The week ahead 09 October 2023 - Business activity data is revised upwards as oil slides

What to watch out for in the UK economy and property market this week.

Last week saw more data that confirms our view the economy is holding up better than expected, but not to the extent one could use the word ‘good’ to describe the present situation. The composite UK PMI figure for September was revised upwards from 46.8 in the early ‘flash’ estimate to 48.5, which is little changed from August. The convention of the PMI business activity index is that a reading under 50 points to a contracting economy. So, while it is good news that the number was revised upwards, the reading does suggest the economy has contracted for two months in a row. Adding on the fact that both the Halifax and Nationwide house price indices reported an annual fall for September, clearly we are in a subdued period for the economy, although that does increase the likelihood that the UK base rate has now peaked.

The news headlines last week were dominated by the axing of the Birmingham to Manchester leg of the HS2 line, with the funds redeployed to other infrastructure projects. Consequently, the recent slide in the oil price has received less attention than it probably merits. Having peaked at $96.55 a barrel on 27th September, Brent crude oil fell to $84.50 by Friday lunchtime. Many advanced economies saw an uptick in inflation in August and September, in part due to higher petrol prices. If this price decline for oil turns into a sustained downwards trend, the recent strengthening of inflation will go into reverse, which will be welcomed by both households and firms. On Friday, the Russian government lifted a ban on the export of diesel, which should further push down fuel prices.

This week sees UK GDP figures released, and given we have already seen evidence that higher interest rates are slowing the economy we are forecasting growth to flatline. Similarly, Eurozone industrial production figures due out on Friday are likely to make for downbeat reading. The US is set to release inflation numbers, with higher petrol prices expected to have caused a small rise. However, we are predicting a fall for US core inflation, which should reassure the Fed and thus reduce the risk of another hike for interest rates.

Things to watch for this week

Thursday, October 12th

UK GDP, m-on-m, August

Previous: -0.5%
Forecast: 0.0%

Given the disappointing PMI figures we have seen over the summer, and signs higher interest rates are taking their toll on firms and households, we are forecasting GDP growth to flatline in August.

US CPI Inflation, September

Previous: 3.7%
Forecast: 3.8%

Due to the rise in gasoline prices seen lately, we are expecting a small increase in headline inflation. However, we are also predicting a decline in core inflation (which excludes volatile items like fuel and food) which is closely watched by the Fed as a sign of underlying inflation.

Friday, October 13th

Euro Area Industrial Production, m-on-m, August

Previous: -1.1%
Forecast: 0.0%

July saw a marked fall in Eurozone industrial production in the face of rising interest rates and subdued export demand. The same factors remained in place in August, so we are predicting no growth.