The week ahead 08 July 2024 UK - Financial markets welcome in the new government
What to watch out for in the UK economy and property market this week.
UK financial markets rose on Friday morning as the widely expected landslide election victory was announced. The FTSE All Share and pound / dollar exchange increased modestly in morning trading, while 10-year Gilt yields hardened slightly. Neither the dollar exchange rate nor 10-year Gilt yields are greatly changed on when the election was called on 22nd May, while the FTSE All Share is only marginally down. Most likely this is because the election has gone largely as was expected. So far this year, the FTSE All Share index has risen by just over 7%, which shows investors are positive on the outlook for the UK economy, and not concerned about a change of government. In recent years, Labour has built bridges with the City and the wider business community, which appears to have re-assured the financial markets.
Drowned out by the election debate was news last Wednesday that the final version of the UK composite PMI business activity index figure for June was revised upwards. Originally reported at 51.7 in the early ‘flash’ estimate, the final number was 52.3. Nevertheless, this marked a decline on the May figure of 53.0, which commentators attributed to political uncertainty surrounding the general election. This is a reminder that the election’s conclusion will now put businesses in a better position to plan for the future, particularly when the new government announces its policy agenda at the King’s Speech, which is expected on 17th July. We are currently forecasting a Bank of England Base Rate cut in August of 25 bps. So, we believe that by September many property investors will be looking to the future, and discussing how to deploy funds to exploit a strengthening UK economic outlook.
This week sees data for the UK on GDP and retail sales. GDP ground to a halt in April, in part due to bad weather hitting the retail and construction sectors. The weather improved to an extent in May, so we are predicting a small increase for GDP growth on a month-on-month comparison. The retail sales figures, which relate to June, should also gain as a result of better weather – although there is no reason to suppose they will be particularly strong.
Things to watch for this week
Monday, July 8th
Germany Trade Surplus, May
Previous: €22.1bn
Forecast: €20.3bn
Germany’s manufacturing PMI index remained below the pivotal 50 mark in May, so we are predicting a reduction in Germany’s trade surplus for that month.
Tuesday, July 9th
BRC Retail Sales, y-on-y, June
Previous: 0.4%
Forecast: 0.7%
Better weather, and to a lesser extent the commencement the Euro 2024 football championship, may have slightly lifted retail sales growth in June; although activity remains subdued by historic standards.
Thursday, July 11th
UK GDP Growth, m-o-m, May
Previous: 0.0%
Forecast: 0.2%
Improved weather in May compared to April might have pushed up output for industries like retail and construction. Consequently, we are forecasting modest growth for GDP in May.
