The week ahead 26 February 2024 - Businesses report growth in February
What to watch out for in the UK economy and property market this week.
The latest UK PMI data made for encouraging reading, and raised hopes that the recession may have been restricted to just Q3-Q4 of last year. The convention of the index is that a reading of over 50 points to growth in the commercial side of economy (so excluding the public sector), and the February figure was 53.3, up from 52.9 in January. However, there was a marked difference in the performance of the Services sector at 54.3 compared to Manufacturing at 47.3. There was also evidence that the disruption to the shipping lane through the Red Sea is hitting supply chains, with firms reporting increased freight costs which they are passing on to customers via higher prices. Overall, the PMI data bodes well for the Q1 GDP figures, although growth in the private sector will be partly offset by the negative impact of on-going strikes in the public sector.
The Governor of the Bank of England, Andrew Bailey, told a Parliamentary committee last week he did not view it as necessary for inflation to reach 2.0% before the Bank started to cut the Base Rate. Governor Bailey also talked down the scale of the technical recession experienced by the UK in H2 2023, which he described as “very small”. Separately, the gas and electricity market regulator Ofgem announced that the household energy price cap for the UK will be cut by 12% from this April, a move that will further exert downwards pressure on inflation. This will ease the squeeze on household incomes which has dampened consumer spending in the last two years, thus improving the outlook for the retail, hospitality and leisure industries.
This week sees house price data for the UK and figures on inflation and unemployment for the Eurozone. The Nationwide index has surprised on the upside in lately, in part thanks to falling mortgage rates. We suspect the latest data may show a further modest improvement in the housing market, but given the poor economic backdrop we would also caution against taking a bullish stance based on the February house price numbers. We expect Euro Area inflation to fall slightly in the face of lower energy prices and weak GDP growth, and are predicting no change in the unemployment rate.
Things to watch for this week
Thursday, February 29th
Nationwide UK House Price Index, y-o-y, February
Previous: -0.2%
Forecast: 0.1%
We believe house prices could dip back into positive territory on an annual comparison, as the index has achieved month-on-month growth in four of the last five months.
Friday, March 1st
Euro Area Inflation, February
Previous: 2.8%
Forecast: 2.7%
Inflation has now fallen in ten of the last twelve months, and we are predicting another decline for February, which will increase the debate on when rate cuts will begin.
Euro Area Unemployment Rate, February
Previous: 6.4%
Forecast: 6.4%
Despite weak GDP growth, the unemployment rate has been remarkably stable, and is even down on a year ago. We are forecasting no change for February.
