The week ahead 24 June 2024 - August rate cut on the horizon

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

Last week’s Bank of England Monetary Policy Committee (MPC) meeting saw the Base Rate left unchanged at 5.25%, as was widely expected. However, the financial markets focussed on a comment in the meeting minutes that said for several committee members the decision had been “finely balanced”. There is no MPC meeting in July, so speculation is growing that the August meeting will see a cut of 25 bps. That UK inflation returned to target at 2.0% in May has strengthened the likelihood that policy loosening will soon commence. Last Thursday saw the Swiss National Bank reduce its policy rate by 25 bps, while both the ECB and Bank of Canada announced rate reductions earlier this month. Our full analysis of the Bank of England rate decision can be found here.

The latest UK retail sales figures were released last Friday and reported a strong rebound, with month-on-month growth reaching 2.9% in May compared to a fall of -1.9% in April. This was partly attributed to better weather, although perhaps the standout feature of the figures looking back over the last 7-8 months has been volatility and the lack of a clear trend. An encouraging point was strong sales for furniture stores. When consumers become frugal they tend to delay buying furniture as it is big expense that is easy to delay, so the rebound may indicate a renewed willingness to make large purchases.

Turning from the consumer to the business side of the economy, the latest UK composite PMI index read at 51.7 for June, down from 53.0 in May. The convention of the index is that a reading over the 50 mark points to growth. The Eurozone PMI index read at 50.8 in June, compared to 52.2 in May.

This week will see data released on economic sentiment in the Euro Area. We expect the recent rate cut from the ECB to have improved business confidence, although political uncertainty might partially counterbalance some of the positive effect. French financial markets have been volatile since the election was called. Also, unemployment figures will be published for Germany.

Things to watch for this week

Thursday, June 27th

Eurozone Economic Sentiment, June

Previous: 96.0
Forecast: 96.4

With inflation down on the start of the year and the first ECB rate cut implemented, we believe sentiment has probably improved; although political risk may act as a drag on the figures, particularly in France.

Friday, June 28th

Germany Unemployment Rate, June

Previous: 5.9%
Forecast: 5.9%

Given recent survey evidence points to continued growth for the economy, we are forecasting the unemployment rate remained stable in June.