The week ahead 03 July 2023 - UK house prices rise, but savings decline
What to watch out for in the UK economy and property market this week.
Last week saw some remarkably mixed economic news, highlighting how unpredictable the situation has become. On the one hand in the UK there was a surprise increase in the Nationwide House Price Index in June (up 0.1% month-on-month). However, this was counterbalanced by figures from the Bank of England which showed UK savers withdrew a record amount from bank accounts in May. This has been attributed to some households falling back on savings to pay bills, and others seeking higher yielding investments. This increases the suspicion that the June house price rise was a one-off. This is a difficult time for consumers and interest rates look set to rise further, which leads us to forecast a further decline for house prices in the second half of the year. Capital Economics estimate that of the base rate hikes to date only 40% of the impact has reached the economy, so consumers may be drawing on their saving further in the coming months.
Meanwhile in Europe, we saw some brighter news on inflation. France, Italy and Spain all reported falling inflation in June, although Germany bucked the trend with an increase. Spanish inflation at 1.6% is now below the 2.0% level central banks usually target. For the Eurozone overall, headline inflation fell from 6.1% in May to 5.5% in June, although core inflation ticked upwards from 5.3% to 5.4%. We suspect the ECB will focus more on the sticky core inflation figure, and increase rates by another 25 bps at its next meeting on the 27th July. In the US, the number of new jobless claims fell in June, which will put pressure on the Fed to hike at its next meeting. Last week saw a conference of senior central bankers in Portugal, where the heads of the Fed, ECB and the Bank of England hinted that further policy tightening lay ahead. Higher rates will probably exert upwards pressure on property yields over the summer.
This week sees US non-farm jobs data, which will be closely watched by the Fed after last week’s fall in new jobless claims. We believe that job creation will be down on a month-on-month comparison, thanks to higher interest rates slowing the economy, but not by enough to deter a rate hike later this month. Also, Germany will release industrial production figures, and given the subdued conditions in the global economy we are only expecting marginal growth.
Things to watch for this week
Thursday 6th July
Eurozone Retail Sales, May
Previous: 0.0% m-on-m
Forecast: 0.2
Given these figures are for May, when inflation was falling but still elevated by historic standards, we believe retail sales will show some growth but at a subdued pace.
Thursday 6th July
US Non-Farm Payrolls, June
Previous: 339k
Forecast: 275k
After a strong May figure, we believe the impact of higher interest rates will be more evident in the June data, leading to a slowdown in job creation.
Germany Industrial Production, May
Previous: 0.3%
Forecast: 0.1%
With signs of weakness across the global economy, we believe Germany’s industrial sector probably saw a moderate slowing of activity in May, but still achieved marginal growth.
