The week ahead 25 November 2024 - UK inflation rises as business activity slows

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

The Bank of England was faced by conflicting data on the economy last week as it mulls the future path for interest rates. CPI inflation increased from 1.7% in September to 2.3% in October, which would normally push back the date of the next Base Rate cut. However, the November UK Composite PMI (a business activity index) slid to 49.9, down from 51.8 in October. A reading of under 50 points to contracting private sector output. This follows disappointing GDP data for Q3, and suggests the need to support growth through further interest rate cuts is increasing.

The rise for CPI inflation was widely expected and mostly driven by the increase in the Ofgem energy price cap, so in our opinion is less cause for concern. It should be remembered that while the Bank of England has a 2% inflation target, it also has latitude of 100 bps either side of that target, so 1% to 3%. Consequently, we believe rate setters will view growth as the higher priority, although they may want to see more data to be sure of this. There is no January 2025 Bank of England Monetary Policy Committee meeting, so we now view a February Base Rate cut as a growing possibility.

The other dilemma facing the Bank of England is whether it should now view the autumn Budget as an inflationary or deflationary event. While the increase in the minimum wage and higher government spending will be inflationary, it looks like rises in taxes and costs for businesses may be encouraging some to rein back expenditure in other areas to balance the books. The Bank will be anxious to avoid the emergence of stagflation, where prices go up but there is not an accompanying rise in output.

Also, the latest UK retail sales figures were a disappointment, with sales down -0.7% m-on-m in October versus a consensus forecast of -0.3%.

This week sees inflation data released for the US and Eurozone. We are forecasting no change for the US, and a small increase for the Eurozone, although it is the future direction of inflation that is increasingly the focus of debate in the aftermath of the Trump election win in the US, where promised tariffs could push up inflation in America further down the line.

In the UK, Nationwide will release its house price index for November. Given the ongoing signs of health for the market we are predicting growth to continue at a similar pace to the previous month.

This week’s figures

WEDNESDAY 27 NOVEMBER

US PCE Inflation, y-on-y, October

2.1% previous
2.1% forecast

Given interest rates are still relatively high and there are signs the jobs market is slowing, we see October’s inflation figure remaining steady at 2.1%.

FRIDAY 29 NOVEMBER

Euro Area ‘Flash’ Inflation, November

2.0% previous
2.2% forecast

Higher energy prices are expected to push up inflation again for the Euro Area, which will muddy the waters for the ECB on when to next cut interest rates.

Nationwide House Price Index, November

2.4% previous
2.4% forecast

We believe house prices continued to grow in November thanks to lower interest rates and resilient buyer confidence on the outlook.