The week ahead 15 January 2024 - Better than expected GDP boosts confidence
What to watch out for in the UK economy and property market this week.
Last Friday was a big news day, with the US / UK air strikes in the Middle East dominating the headlines, overshadowing a return to growth for UK GDP. Having contracted by -0.3% in October, output was 0.3% in November which was ahead of the consensus forecast of 0.2%. There is now a reasonable possibility that the full Q4 GDP figure might not be negative, and if that is the case the UK would avoid recession. This adds to the growing evidence that the UK economy is proving to be far more robust in the face of high interest rates, high inflation and Brexit than most anticipated. However, this needs an accompanying caveat, as December last year saw a number of strikes, which will dampen growth. It should also be remembered that over the course of 2023 GDP has more-or-less flatlined, although that is better than a recession.
Turning to Friday’s other big news story, events in Gaza are now spreading across the Middle East region, and fuelling existing conflicts. This will have a number of short and long-term implications. In the short-term there might be a mini burst for inflation, and problems for supply chains. On the long-term implications, the disruption to the Red Sea / Suez Canal shipping lane is coinciding with a drought in central America that is causing problems in the Panama Canal by lowering the water level. Climate change is thought to be part of the problem in Panama, so delays transiting the canal might become common in the future. This could encourage more corporations to move supply chains to near shore; a trend already boosted by Covid and the war in Ukraine. Moreover, the geo-political unrest of the last few years is adding greater urgency to the drive for green, locally sourced energy and a carbon neutral economy, which has major implications for us in the property sector.
This week sees UK labour market figures published which we expect to show a modest rise in unemployment. Also, sentiment figures are out for the Eurozone, and we are forecasting them to show another small improvement on sentiment, indicating we are past the trough in this cycle. UK retail sales figures for December will be released on Friday, but could be disappointing as Black Friday discounts may have hauled a larger share of Christmas sales into November.
Things to watch for this week
Tuesday, January 16th
UK Unemployment Rate, November
Previous: 4.2%
Forecast: 4.3%
The unemployment rate has been steady for five consecutive months. However, we are predicting a small increase as firms look to trim expenses by shedding staff in the face of higher interest rates.
Eurozone ZEW Sentiment Index, January
Previous: 23.0
Forecast: 25.0
Sentiment has been in improving for the last three months, buoyed by expectations of interest rate cuts to come this year. Consequently, we are forecasting another rise for the index.
Wednesday, January 17th
UK Inflation, December
Previous: 3.9%
Forecast: 3.8%
We believe that inflation will edge down again, although the 3.8% we are predicting is still well above the Bank of England’s 2.0% target with latitude of 100 bps either side.
Friday, January 19th
UK Retail Sales, m-on-m, December
Previous: 1.3%
Forecast: 0.1%
Last week’s figures from BRC reported lacklustre trading in December. Also, aggressive discounting in November for Black Friday may have pulled a larger share of Christmas shopping into that month. Consequently, we expect just marginal growth in December versus November.
