The week ahead 10 June 2024 - ECB and Bank of Canada cut interest rates
What to watch out for in the UK economy and property market this week.
Last week saw the ECB and the Bank of Canada cut their policy interest rates by 25 bps each, as both pivoted from fighting inflation to supporting growth. The move demonstrates that some G7 central banks are confident they do not need to follow the lead of the US Federal Reserve, and this will have implications for the outlook for market interest rates. This could also spark a rethink of what the financial markets expect of the Bank of England, which announces its next rate decision on June 20th. The UK one year swap rate stood at 5.22% on Thursday, down from 5.28% a week earlier. ECB officials gave little indication on the possible timing of future rate cuts at the subsequent press conference, and the tone of the statements was on the hawkish side.
The latest BRC Retail Sales figures pointed to a return to growth in May, but nevertheless were weaker than expected. Having contracted by -4.4% in the year to April on a like-for-like basis, sales in May saw growth of 0.4%, which was less than the consensus forecast of 1.2%. The recovery was driven by a rise for food sales, which more compensated for a decline for non-food categories. There were though bright spots within non-food, such as the strongest sales for computers since the outbreak of Covid. This is interesting as upgrading IT equipment is a purchase which consumers often delay when they feel money is tight. Taken alongside strengthening consumer sentiment figures, this points to higher confidence among households.
This week sees labour market and GDP figures for the UK released, and data on industrial production for the Eurozone. Recent months have seen a deceleration for the jobs market in Britain and we believe high interest rates will extend that trend. Bank of England policymakers will be closely watching the pay growth data and looking for evidence of a slowdown, which would help pave the way for a rate cut. The GDP numbers will in our opinion report a modest slowdown due to disappointing retail sales in April.
Things to watch for this week
Tuesday, June 11th
Average Earnings ex bonus, y-o-y, April
Previous: 6.0%
Forecast: 5.8%
Recent months have seen the unemployment rate rise and jobs vacancies decline, so we are expecting pay growth to slow.
Wednesday, June 12th
UK GDP, m-o-m, April
Previous: 0.4%
Forecast: 0.2%
We are forecasting continued growth for GDP but slightly down on March’s figure, reflecting weaker retail sales in April caused in part by poor weather and Easter falling mostly in March.
Thursday, June 13th
Euro Area Industrial Production, m-o-m, April
Previous: 0.6%
Forecast: 0.7%
In line with improving survey evidence, and supported by lower inflation, Eurozone industrial production strengthened in February and March. We are predicting strengthening growth in April.
