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The week ahead 23 October 2023 - Inflation refuses to budge

The Week Ahead 23 October 2023

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

The latest UK inflation figures will have caused disappointment in Threadneedle Street, given the headline rate remained unchanged at 6.7% in September, defying forecasts of a decline. This was due to a rise in petrol prices and a fall in food prices cancelling each other out. Core inflation did fall, but services inflation increased slightly. A big fall for inflation is expected in the October figures, due to gas and electricity prices. Also, the labour market figures last week showed a moderation in pay growth. This may be enough to persuade the Bank of England to leave rates unchanged in its early November meeting. However, with the Bank’s inflation target at 2.0%, and all other G7 nations with much lower inflation, there is now enormous pressure on policymakers to get price rises under control.

Last week also saw more downbeat news on the consumer side of the economy. UK retail sales fell by -0.9% month-on-month in September, which was well below the consensus figure of -0.2%. The ONS attributed this to a combination of the cost of living crisis and warm weather hitting sales for autumn clothes. There was also a sharp fall of -2.2% for online shopping. Separately, the GfK Consumer Confidence Index declined from -21 in September to -30 in October, and again this was worse than forecast. With inflation proving slow to fall and interest rates high, the consumer side of the economy will probably continue to struggle in the coming months. This will probably also be true for consumer-facing real estate.

This week sees the release of ‘flash’ PMI Indices for most major economies, with the UK index likely to show activity continued to slow in October. The US GDP figure for Q3 will be released on Thursday, which we believe will show an improvement compared to Q2. Also, the ECB makes its interest rate decision, and we are predicting no change – indeed, three Eurozone countries now have inflation below 1%.

Things to watch for this week

Tuesday, October 24th

UK PMI Composite ‘Flash’ Index, October

Previous: 48.5
Forecast: 49.5

This index is based on a survey of businesses on trading conditions, where the results are collated into an index whose convention is that a reading over 50 indicates growth. With interest rates high, we believe the index will remain below the pivotal 50 mark suggesting private sector business output is contracting.

Thursday, October 26th

US GDP Growth, q-on-q annualized, Q3

Previous: 2.1%
Forecast: 3.9%

Forecasters are expecting US GDP to be higher in Q3 compared to Q2 thanks to inflation having fallen – the GDP figures are inflation adjusted. However, this will probably be a case of a bright spot for the economy before high interest rates and the impact of strikes cause growth to slow again in the final quarter of the year.

ECB Rate Decision, October

Previous: 4.5%
Forecast: 4.5%

Following the sharp fall in Eurozone inflation, from 5.2% in August to 4.3% in September, we believe the ECB will be under little pressure to hike rates. Consequently, we are expecting the policy rate to remain at 4.5% for some time now while the ECB monitors the data.

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