The week ahead 08 January 2024 - A strong December for the UK Services sector

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

Last week saw the release of the final PMI figures for the UK economy, which showed a bifurcation in performance as Services surged while Manufacturing struggled. The convention of the PMI index is that a reading over 50 indicates economic growth. The Services sector index increased from 50.9 in November to 53.4 in December, and there were encouraging signs for the future with survey respondents reporting a rise in new orders. The Services sector accounts for 81% of GDP in the UK. In contrast, the Manufacturing sector PMI declined from 47.2 in November to 46.2 in December, so below the 50 mark and falling.

The PMI index is focussed on private sector firms, so it should be remembered that the December doctors strike will dampen the Office for National Statistics data for total Services output (including the public sector), and this will feed into the GDP numbers. Given the poor performance for manufacturing, we are predicting a weak Q4 2024 GDP figure. Nevertheless, the timing of this end of year resurgence for private Services activity is interesting, given the new mood emerging in the financial markets in recent weeks, with growing optimism and a greater willingness to deploy money. This could bode well for commercial property investment markets, where we have seen significant price corrections since Summer 2022, which is likely to draw the attention of opportunist investors in 2024.

There was also sobering news last week from the Eurozone, where headline inflation rose from 2.4% in November to 2.9% in December. Core inflation, however, continued falling to 3.4% in December from 3.6% the previous month. These figures will dampen some of the speculation on an earlier than expected ECB rate cut.

This week sees the publication of UK retail sales data for December, which we believe will be a mixed bag given Christmas Eve fell on a Sunday and several big names did not open stores on Boxing Day. The November UK GDP figures are released on Friday, and we are expecting a small month-on-month improvement. Unemployment figures for the Euro Area will be published tomorrow but are not expected to show much change.

Things to watch for this week

Tuesday, January 9th

Euro Area Unemployment Rate, November

Previous: 6.5%
Forecast: 6.5%

The Euro Area unemployment rate has been unchanged at 6.5% for four consecutive months. At present, there is little evidence of firms aggressively making redundancies, leading us to forecast no change.

BRC Retail Sales Monitor, y-on-y, December

Previous: 2.6%
Forecast: 2.0%

We are expecting year-on-year growth, but probably with a deceleration compared to November given Christmas Eve shopping was restricted by Sunday trading hours and several major retail groups did not open on Boxing Day.

Friday, January 12th

UK GDP, m-on-m, November

Previous: -0.3%
Forecast: 0.1%

Following the surprise drop in output seen in October, we are forecasting a modest improvement in November, reflecting the recovery for private Services reported in the PMI data.