The week ahead 25 March 2024 - Business activity holds up in March

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

Last week’s UK inflation and PMI figures made for upbeat reading, providing reason to feel more optimistic about the outlook. The ‘flash’ March PMI figure was 52.9, down slightly from 53.0 in February, although the convention of this business activity index is a reading of over 50 indicates a growing economy. So, the key takeaway is there is a growing possibility the Q1 2024 GDP numbers will show that the economy has exited the recession seen in Q3-Q4 2023. Also, headline CPI inflation fell by more than expected from 4.0% in January to 3.4% in February. There was also a significant fall in core inflation (which excludes volatile items like food and fuel) to 4.5% in February, down from 5.1% in January. This will ease the Bank of England’s concerns over ‘sticky’ inflation.

However, the news that grabbed the front-page last week was interest rates. While the US Fed and the Bank of England caused no surprises by leaving rates unchanged, their subsequent statements and forecasts sparked much debate. The US Fed’s ‘dot plot’ forecasts (where Fed officials give their rate predictions) suggested a majority favoured a reduction of rates by 75 bps over the remainder of this year; although most pundits now expect those cuts to happen in the second half. Meanwhile, the Bank of England Governor, Andrew Bailey, said that the situation is “moving in the right direction” for a Base Rate cut. For the UK, Oxford Economics are forecasting the first reduction to happen June, a view we concur with. However, the big surprise came from the Swiss National Bank who became the first major central bank to cut rates – from 1.75% to 1.5%. Our full discussion of the Bank of England rate decision can be found here.

This week will see a revision of the Q4 2023 UK GDP figure, which will most probably confirm that the economy finished last year in recession. However, it will be interesting to see if there is an upwards or downwards movement, suggesting the situation may have been worse or not as bad as previously supposed. Also, economic sentiment data is out for the Eurozone and labour market figures for Germany.

Things to watch for this week

Wednesday, March 27th

Euro Area Economic Sentiment, March

Previous: 95.4
Forecast: 95.7

Business sentiment in the Eurozone declined in January and February, due to high interest rates and inflation. However, we believe the recent improvement in consumer confidence may have improved trading conditions for firms resulting in stronger business sentiment.

Thursday, March 28th

UK GDP Growth (Revision), q-on-q, Q4 2023

Previous: -0.1% (Q3)
Forecast: -0.3%

Given most other data for Q4 points to difficult conditions, we are forecasting no change in the latest revision of the GDP numbers.

Germany Unemployment Rate, March

Previous: 5.9%
Forecast: 5.9%

Like most other major economies, Germany has not seen a sharp increase in its unemployment rate in the current downturn. We are predicting the unemployment rate to remain unchanged at 5.9%.