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The week ahead 07 May 2024 - Mixed signals on the Housing market

07 May 2024

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

Questions emerged last week about the strength of the recovery in the housing market following the release of some mixed data. Bank of England figures showed around 61,000 new mortgages were approved in March, which was in line with expectations and slightly higher than February. However, the Nationwide House Price Index for April declined by -0.4% month-on-month, compared to forecasts of growth of 0.2%. The recovery in the housing market has inversely tracked the mortgage rate, and an increase for rates lately has resulted in a small reversal for prices. Given expectations for when the Base Rate may begin falling have rolled back later into the year, this could mean house price indices might occasionally see the odd month of contraction in the short-term. However, with the economy and consumer sentiment improving, we do not view this as the start of a double dip for prices.

As was widely anticipated, the Federal Reserve left interest rates in the US unchanged, and hinted that a cut was some way off – we are now forecasting November. However, Fed Chair, Jay Powell, poured cold water on talk that a rate hike might be in the pipeline. Separately, there was news that bodes well on the outlook for Eurozone interest rates. GDP for the Euro Area in Q1 grew by 0.3% q-on-q, which was ahead of expectations, while inflation met forecasts by remaining unchanged at 2.4%. Consequently, we believe the ECB will defy financial market expectations and begin cutting its policy rate before the Fed, starting in June.

This week the Bank of England Monetary Policy Committee will announce their decision on the UK Base Rate. There is very little chance of a cut, although it will be interesting to see how voting falls among the MPC members, and what clues are given on future direction at the subsequent press conference. On Friday the UK GDP figures for Q1 2024 will be published, and we are predicting they will show the economy has exited the recession seen in Q3 and Q4 of last year.

Things to watch for this week

Tuesday, May 7th

Euro Area Retail Sales, March

Previous: -0.5%
Forecast: -0.2%

After a disappointing February figure, we are predicting a slower rate of decline for March reflecting improved consumer sentiment but recognising that wet weather in parts of western Europe may have impacted footfall.

Wednesday, May 8th

German Industrial Production, m-on-m, March

Previous: 2.1%
Forecast: 0.8%

January and February saw a return to growth, which we are forecasting to continue into March but at a reduced pace.

Thursday, May 9th

Bank of England Rate Decision, May

Previous: 5.25%
Forecast: 5.25%

It is almost certain there will be no rate change at this meeting, however the markets will be closely monitoring the statement and press conference for clues on the future direction.

Friday, May 10th

UK GDP, q-on-q, Q1 2024

Previous: -0.3%
Forecast: 0.2%

The monthly GDP figures have already reported growth in January and February. Given the upbeat survey evidence for March, we are forecasting the economy expanded in Q1.

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