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The week ahead 16 January 2023 - UK avoids recession for now

16 January 2023

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

UK avoids recession for now

The economic news lately seems to have more plot twists than a detective novel, as the November UK GDP showed growth of 0.1% - the consensus was for a contraction. This throws into doubt the view that the economy is already in a recession, although as Capital Economics put it: “We still think a recession is on its way”. The ONS in part attributed the surprise growth to the FIFA World Cup boosting hospitality firms, although the two fastest growing service industry sectors were Administrative and Support Services (which contains activities like recruitment and facilities management) and Information and Communication. This points to broader growth, not just a one-off busy month for pubs.

This has coincided with upbeat data from abroad. US core inflation fell for the third consecutive month from 6.0% in November to 5.7% in December, while US initial jobless claims were lower than expected. In Europe, Germany’s full year GDP growth was slightly higher than forecast at 1.9%, although Spain reported a fall in industrial production in November. On balance, most economic indicators are coming in marginally better than expected. The downside is this mounting evidence growth is holding up will give central banks the confidence to continue hiking interest rates. Inflation is now falling around the world, but policymakers want to see much lower figures before they ease the pressure. We still see the UK base rate reaching 4.0%, up from 3.5% currently.

This afternoon sees the release of MSCI UK monthly index for December. The capital growth index has already fallen for five consecutive months, and higher interest rates, negative sentiment and concern over the near-term outlook make another decline look a near certainty. The speed of the price correction though does improve the possibility of a recovery in sales volumes in the coming months.

Things to watch for this week

Monday 16th January

MSCI UK Monthly Index, December

Previous (all capital growth): -5.9% m-on-m
Forecast: -4.6%

October and November saw significant falls for all property capital values, with industrial the hardest hit of the three main sectors. We expect a similar pattern to be reported for December.

Tuesday 17th January

UK unemployment rate, November

Previous: 3.7%
Forecast: 3.7%

Unemployment rose marginally in October, and while we expect further increases in the coming months, the pace of the uplift will probably be very gradual.

Wednesday 18th January

UK inflation, December

Previous: 10.7%
Forecast: 10.7%

After the fall for CPI inflation in November, we are expecting little change this month, although some commentators are calling an increase for December. However, over the course of 2023 we are expecting a sharp fall for inflation.

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