The week ahead 05 February 2024 - MPC divided at latest rate setting meeting
What to watch out for in the UK economy and property market this week.
As was widely expected, the Bank of England Monetary Policy Committee (MPC) voted to keep the Base Rate unchanged at 5.25% last Thursday. Six committee members voted for no change, one voted for a cut and two actually favoured hiking rates by 25 bps. While the next move for interest rates will most probably be downwards, it is surprising that we have such divergence of opinion within the MPC. This is because inflation in the UK at 4.0% in December is still surprisingly high given the economy is clearly slowing. Indeed, the UK has been looking like an outlier on inflation lately compared to other major economies, with Eurozone inflation in January falling to just 2.8%. Figures released last week also showed Eurozone GDP flatlined in Q4 2023. However, the Bank of England is forecasting UK inflation will fall to 2.0% in Q2 2024, and this is why we believe a base rate cut will occur in May.
In global news, the latest edition of Drewry’s World Container Index showed the rate for shipping for a 40 ft container reached $3,824 last week, up from $1,382 on 30th November. While rates have increased sharply on all major routes, unsurprisingly it is those that pass through the Red Sea that have been hardest hit. Many Chinese factories will in the coming days start to run down production as they prepare to close for the week-long Lunar New Year holiday, so freight rates will probably ease this month. However, unless the situation in the Middle East improves, supply chain bottlenecks could be a theme in the economy in the coming months. This will have implications for both inflation and industrial production. It may also discourage developers from advancing new construction projects in the coming months.
This week sees data released on retail sales in the Eurozone which will show whether high interest rates have caused shoppers to rein back spending. This will have implications for the outlook for retail property in Europe. Also, Germany publishes industrial production figures for December, although it will probably be too soon to see evidence of shipping delays impacting production.
Things to watch for this week
Tuesday, February 6th
Eurozone Retail Sales, y-on-y, December
Previous: -1.1%
Forecast: -1.1%
With consumers squeezed by high interest rates we believe retail sales may have fallen on an annual comparison in December.
US Consumer Credit Change, m-on-m, December
Previous: $23.7bn
Forecast: $10bn
Growth in US consumer borrowing spiked in November, partly due to increased use of credit cards. We suspect many consumers did more of their Christmas shopping in November, persuading us to forecast less borrowing in December.
Wednesday, February 7th
Germany Industrial Production, m-on-m, December
Previous: -0.7%
Forecast: 0.0%
Weak export demand has hit industrial output in recent months, although we believe lower energy costs may have caused output to level out in December.
