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The week ahead 02 October 2023 - UK GDP has held up better than expected

02 October 2023

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

Last week saw the ONS release revisions to the UK GDP figures which showed the economy has performed better in recent years than previously reported. GDP returned to its pre-Covid level by the end of 2021, and was 1.8% above that level by Q2 2023. Also, growth in Q1 of this year was revised upwards from 0.1% to 0.3% q-on-q, which is interesting given around this time last year most forecasters (including the Bank of England) were predicting Q4 2022 / Q1 2023 would see a recession. While 2023 has not been a particularly strong year for the economy, the figures point to greater resilience than had been supposed. It would be a mistake to interpret this as a reason to become bullish, as recent business survey data has been downbeat and interest rates are high. Nevertheless, this is a reminder that bearish commentary should be approached with the same level of caution we apply to bullish viewpoints.

Another positive development was the fall in Eurozone inflation to its lowest level since October 2021. Headline inflation decelerated from 5.2% in August to 4.3% in September. Core inflation was also down to 4.5% from 5.3% previously. This increases the chances the ECB might now leave interest rates unchanged at its next meeting.

Last week also saw encouraging data for the housing market, with net mortgage lending rising by £1.2 billion, up from £0.2 billion in July, according to the Bank of England. However, mortgage approvals declined from nearly 50,000 in July to 45,000 in August, which tallies with a recent RICS survey that mentioned a fall in houses coming to the market and fewer buyer enquiries. Our reading of the data is that recent declines in mortgage rates have helped bring some people back to the market. However, affordability issues and less stock coming up for sale are acting as a brake on activity. In the circumstances, it remains our view that house prices probably have further to decline, although the worst of the correction is probably behind us.

This week sees final PMI data for several major economies, including the UK. The early ‘flash’ figures were disappointing, and markets will be watching for any revisions. In the US, several labour market indicators will be released, and the Fed will be looking for reassurance that the jobs market is continuing to slow.

Things to watch for this week

Tuesday, October 3rd

US JOLT job quits, August

Previous: 3.5 million
Forecast: 3.4 million

The number of US workers quitting has been declining for several months. We believe the August figures will fall into line with pre-Covid levels, which should reassure the Fed and reduce the likelihood of a future rate hike.

Wednesday, October 4th

UK Composite PMI index, September

Previous: 48.6
Forecast: 46.8

The convention of this survey-based index is that a reading of under 50 points to a contraction in output. The early ‘flash’ figure was well into negative territory at 46.8 in September.

Eurozone Retail Sales, m-on-m, August

Previous: -0.2%
Forecast: -0.2%

With interest rates high, and growth weak in several major Euro Area economies, we are expecting another decline in retail sales in August similar to that seen in July.

Friday October 6th

Non-Farm Payrolls, September

Previous: 187k
Forecast: 150k

Job creation in recent months has been slow compared to the levels seen earlier this year and during 2022. Given that interest rates are high and slowing the economy, we are predicting a deceleration in job creation in September compared to August.

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