The week ahead 12 February 2024 - PMI data points to strong growth for Services

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

The January UK PMI index reading was revised higher last week, and showed an increase from 52.1 in December to 52.9 in January. The PMI is based on a survey of businesses commenting on trading conditions, and the responses are turned into an index whose convention is that a number above 50 points to growth. The increase in January was driven by the Services Sector, and firms reported growth in new orders and recruitment. Given this survey just looks at the private sector, it adds to mounting evidence that the slowdown in the economy is more pronounced in the public sector due to strike action. Note also that many private sector firms are still recruiting, despite 14 base rate hikes. However, this upbeat data will be viewed by some in the Bank of England Monetary Policy Committee as evidence in favour of leaving the base rate unchanged at the next rate setting meeting.

Meanwhile, US labour market data published last week further reduced the likelihood of an early interest rate cut from the Federal Reserve. Initial Jobless Claims in the week to February 3rd fell to 218,000, down from 227,000 the previous week. The forecast was for a small increase. Continuing Jobless Claims also declined, pointing to robust demand for workers, and certainly not the cooling labour market that the Fed wants to see. To balance against this is a significant number of high-profile announcements of layoffs in January and February, particularly in the tech sector. There might be an element of the Jobless Claims figures experiencing a time lag, perhaps due to well-paid tech workers being slower to register for unemployment benefits than typical workers.

This week sees inflation data released for the UK and the US, and we suspect in both cases it will strengthen the determination of central banks to leave rates on hold. Expectations on when the Fed and the Bank of England will begin cutting their policy rates are edging back in the face of stronger than forecast data on inflation, employment and GDP growth. Several ECB officials will give speeches this week, which should give us a better idea of their thinking on the outlook for Eurozone rates.

Things to watch for this week

Tuesday, February 13th

US Inflation, January

Previous: 3.4%
Forecast: 3.4%

The December inflation figure came in higher than expected at 3.4%, as the economy was stronger than expected in 2023. With the labour market still constrained, we are forecasting the inflation rate remained steady in January.

Wednesday, February 14th

UK Inflation, January

Previous: 4.0%
Forecast: 4.1%

The consensus is that UK inflation nudged up in January mostly driven by rising prices for consumer goods and services. However, we are anticipating a sharp fall coming in Q2.

Thursday, February 15th

US Retail Sales, m-on-m, January

Previous: 0.6%
Forecast: 0.3%

We believe that higher interest rates will have slowed retail sales in January, resulting in a deceleration in the growth rate.