The week ahead 13 November 2023 - The UK Economy flatlined over the summer

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

The UK GDP figures showed zero growth in Q3, which was down from 0.2% in Q2 but better than consensus forecast of a -0.1% contraction. The services sector recorded a -0.1% fall in output, but this was counterbalanced by growth in construction. The concern here is that construction is a relatively volatile sector, so its growth could quickly turn negative again. Moreover, there is a clear picture emerging of the economy losing momentum – Q1 0.3% growth, Q2 0.2%, Q3 0.0%. One positive consequence of the figures is that the Bank of England will be reluctant to raise interest rates now growth is fading, so it is looking increasingly likely the cost of debt has now peaked. Separately, the RMT railway workers’ union has agreed a settlement of its disputes, which now goes to its membership for a vote. So, strike action may now have less of a dampening effect on growth going forward. However, the UK economy is clearly facing a slow and difficult winter. 
Meanwhile in the US, labour market indicators continued to develop in a manner the Fed will find reassuring, with the latest data showing the jobs market is slowing, but not rapidly enough to generate fears of a hard landing. The number of initial jobless claims rose by 3,000 to 217,000 in the week to November 4th, which is lower than the figures we were seeing earlier in the year. The data is consistent with an economy that is seeing relatively few layoffs. However, continuing claims increased for a seventh consecutive week to over 1.8 million. This suggests while firms are reluctant to lay off staff, those workers who do find themselves unemployed are taking longer to find a new job. So, the US labour market is slowing, justifying the Fed’s decision to leave the funds rate unchanged, but we are not seeing a sharp deterioration that might point to a recession. 
This week the Bank of England will get a better idea whether it was right to leave the base rate steady, as data is released on inflation and the labour market. We expect these indicators to confirm that higher rates are slowing price growth and demand within the economy. Also expected out this week are US inflation figures and Euro Area industrial production data. 

Things to watch for this week

Tuesday, November 14th

US Inflation, October 

Previous: 3.7%
Forecast: 3.7%

Given the recent uptick in petrol prices has started to ease, we believe the inflation rate will not be greatly changed in October. Moreover, core inflation (which excludes volatile items like food and fuel) may even fall. 

ZEW Economic Sentiment Index, November 

Previous: 2.3
Forecast: 4.6

Growing signs that interest rates have peaked while inflation is trending downwards will in our opinion result in a small rise in sentiment. 

UK Unemployment Rate, September 

Previous: 4.3%
Forecast: 4.4%

Given the GDP figures show the economy is stagnating, we are forecasting another rise in the unemployment rate. 

Wednesday, November 15th

UK Inflation, October 

Previous: 6.7%
Forecast: 4.9%

As last year’s big energy price increase leaves the index, we are expecting a marked fall in UK inflation in October. 

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

Previous: 0.6%
Forecast: -0.6%

With the Euro Area economy contracting and international trade subdued, we are forecasting a contraction for industrial production in September.