Londoners are in for a blockbuster week for the economy, one that will set the tone for landlords, consumers and investors alike in 2023.
We will find out if there is any hope that inflation may have peaked before Christmas during a cost of living crisis with interest rates set to rise, and there will also be figures on unemployment and average earnings.
The Bank of England is at the top of the bill, with its December interest rate announcement at midday on Thursday. An increase is almost certain and will increase pressure on mortgage holders, with policymakers determined to control double-digit inflation.
City insiders agree that the only question is how far the Monetary Policy Committee will hike after it last voted 0.75%, which took key rates to 3%. Andrew Goodwin, chief UK economist at Oxford Economics predicts a “pivot back to a 0.50% rise”, adding:
“There is a good chance that a minority of members will support a smaller increase or even keep rates unchanged, which would support our view that investors remain too optimistic about how high rates will come.” Markets currently expect the BoE’s base rate to rise to between 4.5% and 4.75% as the MPC tries to reduce inflation towards its 2% target
Its nine members will have plenty to discuss before voting on a slew of big numbers coming up early in the week.
The first is the monthly number on the size of the economy. From 7am on Monday, the gross domestic product reading tracks the value of all goods and services produced in the UK and will shed more light on whether it is already in recession.
The widely accepted definition of a recession begins with two consecutive quarters of contraction. After a dip in the third quarter, the data won’t push the UK past that line until the end of December. But October’s numbers will provide another indicator down the road, with many economists convinced the recession has already arrived, while the Bank of England itself says it’s on its way.
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Deutsche Bank forecast October GDP to rise 0.4%, recovering from a 0.6% drop in September, boosted largely by the public holiday for the funeral of Queen Elizabeth II.
Sanjay Raja, chief UK economist at Deutsche, predicts that when the fourth-quarter data comes in, it will signal a recession, which he expects to “last for four quarters, with GDP shrinking by around 1.5% peak at least”. He adds: “The current cost of living crisis, high economic uncertainty and increasing cost pressures point to a deteriorating outlook in the coming months.”
So far, the job market has been resilient during the recession. Employment data, released at 7 a.m. Tuesday, is expected to show a relatively low unemployment rate of 3.6 percent. The BoE will pay close attention to average earnings data as it battles inflation. HSBC estimates weekly pay rise to reach 6.2%
Wednesday will also be a busy day, with headline inflation data for November. HSBC expects it to ease slightly to 10.9% from 11.1% in October. But that will leave it significantly above the BoE’s official 2% target, leaving the way open for rate hikes.
But James Hughes, chief analyst at Scope Markets, said: “It is vital to remember that the inflation we saw a year ago has not been sustained. Wheat and crude are now back to the level seen before the Russian invasion of Ukraine, suggesting that we will see a significant contraction here in the coming months.”
At the end of a stellar week for economic data, Londoners should have a clearer picture of where they stand in terms of the recession, the cost of living crisis and the outlook for interest rates and mortgage costs.