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The week ahead 29 April 2024 - Business activity strengthened in April

29 April 2024

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

Last week saw a punchy rise in the UK composite PMI index for April. This is a survey of firms who are asked questions on trading conditions, the results of which are compiled into an index whose convention is a reading of over 50 indicates growth. The April composite figure was 54.0, up from 52.8 in March, with a sharp rise for Services firms outweighing a decline for Manufacturing companies. Indeed, the PMI index for Manufacturing actually dipped below the 50 mark, falling to 48.7. There was also mixed news on inflation, as firms reported that they are seeing rising input costs, but at least for now are choosing not to pass them on to their customers. Separately, there was a slight improvement in UK consumer confidence, with the Gfk index increasing from -21 in March to -19 in April.

This picture of strengthening growth has increased the uncertainty surrounding the timing of the first UK interest rate cut; particularly as two Bank of England Monetary Policy Committee members gave speeches last week that were interpreted as hawkish. Also, the Financial Times ran a report that some US investors are speculating that the Federal Reserve might even hike rates, which would mark a huge policy u-turn for the central bank. While we think the financial markets are now overestimating the inflation risk, the Fed looks unlikely to cut US interest rates soon. However, for now the ECB is sticking to its guidance that a rate cut is drawing near. This leaves the Bank of England in an awkward position regarding the exchange rate, as many commodities are priced in US dollars (an argument for shadowing the Fed on rates) but the Eurozone is the UK’s largest trading partner.

This week sees the release of UK housing market data, particularly mortgage approvals and the Nationwide House Price Index. We are predicting both have seen a modest deceleration as a result of the recent increase in mortgage rates. On Tuesday ‘flash’ GDP figures are out for the Eurozone, where we are forecasting a return to growth. The US Federal Reserve announces its interest rate decision on Wednesday, and no change is widely anticipated.

Things to watch for this week

Tuesday, April 30th

UK Mortgage Approvals, March

Previous: 60.4k
Forecast: 60.0k

By March, mortgage rates were rising which probably prevented further growth for approvals, although at 60,000 we are still forecasting a robust figure.

Euro Area ‘Flash’ GDP, q-on-q, Q1 2024

Previous: 0.0%
Forecast: 0.2%

Given the improving survey evidence seen between January and March, and lower inflation, we believe the Eurozone economy returned to growth in Q1.

Euro Area ‘Flash’ Inflation, April

Previous: 2.4%
Forecast: 2.3%

We would expect the disinflation process to continue, with slight decreases for both headline and core inflation.

Wednesday, May 1st

US Federal Reserve Rate Decision, May

Previous: 5.25%-5.5%
Forecast: 5.25%-5.5%

It is a near certainty there will be no change at this meeting, and the markets will be closely monitoring the press conference for signs of a change in tone.

Thursday, May 2nd

Nationwide House Prices, y-on-y, April

Previous: 1.6%
Forecast: 1.4%

Given the recent increase in mortgage rates we are expecting price growth to ease slightly but remain in positive territory.

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