The week ahead 20 May 2024 - Rate cut looks more likely as UK unemployment rises

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

The latest UK labour market statistics painted a picture of deceleration that increases the likelihood that the Bank of England may cut the Base Rate at its next policy meeting. The unemployment rate increased to 4.3% in March, while total payrolls fell by 85,000 jobs in April and the number of job vacancies declined to their lowest level since June 2021. The exception to the general picture of a slowing jobs market was pay growth which remained unchanged at 5.7%, despite forecasters predicting a fall to 5.3%. However, we believe this resilience was due to a time lag and pay growth will start to weaken soon. These figures increase the chances that the Bank of England Monetary Policy Committee (MPC) will switch from fighting inflation to supporting the economy by cutting the Base Rate by 25 bps at its June meeting.

Meanwhile, in America the S&P 500, Nasdaq and Dow Jones equity indices all hit record highs last week on news US CPI inflation had marginally slowed from 3.5% in March to 3.4% in April. Core inflation, which excludes volatile items like food and fuel, also decelerated from 3.8% in March to 3.6% in April. This ended a three-month run of inflation numbers coming in stronger than expected, which should reassure rate setters at the Federal Reserve. As a result, speculators increased bets on a September cut for the Fed’s policy interest rate. In recent weeks the pound has been sliding against the US dollar, as the Bank of England is expected to begin cutting interest rates before the Fed. In property investment a weak pound often leads to North American investors deploying capital in the UK.

This week sees the release of initial UK PMI Index data for May. The convention of the index is a reading over the 50 mark indicates growth, and we are expecting a figure comfortably above that level, as the economy is achieving growth despite high interest rates. The other big news story this week will be the release of the April UK CPI inflation figure, and we are expecting a marked drop due to the new (and lower) energy price cap coming into effect.

Things to watch for this week

Wednesday, May 22nd

UK CPI inflation, April

Previous: 3.2%
Forecast: 2.2%

With the new energy price cap coming into effect in April, we are forecasting a sharp drop for inflation to close to target.

Thursday, May 23rd

UK Composite ‘Flash’ PMI Index, May

Previous: 54.1
Forecast: 53.9

The PMI figure for April were surprisingly punchy, so we are expecting it to retreat slightly albeit to a level that points to robust growth.