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The week ahead 09 January 2023 - UK monthly GDP

09 January 2023

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

The new year begins with a dark sky above the housing market. Friday’s figures from Halifax showed average house prices falling 1.5% in December compared to November, the fourth consecutive month-on-month decline. Data from the Bank of England showed that the number of mortgages approved slumped from 58,000 in September to 46,000 in October. None of this is surprising, given the cost of living squeeze and nine interest rate hikes since December 2021. It is worth noting though most of the correction so far has been handing back the heady price growth seen earlier in 2022 – the annual growth rate was still positive at 2.0%.

However, we are forecasting house prices to continue to fall throughout 2023, in part because affordability needs to improve. Also, average mortgage rates remain above 5% and there is the impact of the recession to consider. Fortunately, supply constraints should mean it is a correction not a crash ahead. Another positive for the market is that inflation, while still elevated, is clearly moderating. European natural gas futures have now dropped -77% on their August 2022 peak, highlighting the potential for the headline inflation figures to fall sharply in 2023. That does not though mean central banks are done with hiking interest rates, as concerns remain over core inflation (which excludes food and fuel). While euro area headline inflation seems to have declined in November and December according to the “flash” figures released last Friday, services inflation is still rising, proving the genie is not back in the bottle just yet.

This week sees the release of UK GDP data. The figures in recent months were distorted by the Queen’s funeral bank holiday, causing growth to slump in September then rebound in October. The November data gives us our first ‘clean’ reading for the autumn. The PMI data for November and December pointed to a contracting economy, and we believe the GDP figures will reflect that.

Things to watch for this week

Tuesday 10th January

BRC UK Retail Sales, December

Previous: 4.1% y-on-y
Forecast: 2.6%

Following a strong Black Friday weekend in November, we believe a more subdued sales growth figure will be reported for December, in part also due to the rail strikes.

Thursday 12th January

US inflation, December

Previous: 7.1%
Forecast: 6.9%

We expect US inflation to continue its recent downwards trend, thanks largely to falling energy prices. We believe a weaker economy should also cause core inflation to decelerate, which is the indicator the Fed will be closely watching.

Friday 13th January

UK monthly GDP, November

Previous: 0.5% m-on-m
Forecast: -0.3%

Although the economy grew in October, the figures were distorted by September losing a working day due to the Queen’s funeral bank holiday. We believe the wider downwards pressures on the economy will have reasserted themselves in November, resulting in a contraction.

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