The week ahead 16 December 2024 - UK GDP contracted in October
What to watch out for in the UK economy and property market this week.
The latest GDP figures showed the UK economy shrank by -0.1% in October on a month-on-month comparison, which follows a similar -0.1% figure for September. The services sector overall achieved growth of 0.1%, although consumer-facing services like retail saw output decline by -0.6%. There were also contractions for the production and construction sectors. Industries that did achieve growth included information and communication, transport and storage and legal services. It should be noted some industries are seeing quite volatile monthly figures pointing to an uncertain environment.
The UK economy was expected to decelerate in the second half of 2024, but the slowdown we have seen has been sharper than expected. Up to now, forecasters have been predicting no change for the Base Rate at the Bank of England policy meeting this week. However, the GDP figures have put the Monetary Policy Committee (MPC) rate setters in an awkward position. On the one hand, central banks prefer not to surprise markets with rate cuts that were not hinted at in advance. On the other hand, there is no January MPC meeting, and February feels like a long wait for the next rate cut given the economy has slowed markedly in recent months.
Meanwhile, central banks abroad are pushing ahead with rate cuts, with both the ECB and the Swiss National Bank announcing reductions last week – the former by 25 bps, the latter by 50 bps. Also, President-elect Trump poured cold water on rumours the US Federal Reserve Chair, Jay Powell, might be removed. This is a reminder that we need to apply a degree of scepticism to some of the rumours circulating on what a Trump White House might do, as some things hinted at during the election may turn out to be just campaign rhetoric.
As mentioned, the big economic news story this week is the Bank of England interest rate decision on Thursday. We concur with the consensus forecast of no change at 4.75% but acknowledge there is the possibility of a surprise cut given the mounting evidence the economy is struggling to grow.
This week also sees the release of UK labour market data, which we believe will also point to a slowdown. We are forecasting a small increase in the unemployment rate. UK inflation figures are published on Wednesday, and we are predicting little change at 2.3% for November, following a significant increase in October driven by higher energy bills.
This week's figures
TUESDAY 17 DECEMBER
UK Unemployment Rate, October
4.3% previous
4.4% forecast
We believe the recent slowdown for the economy will have reduced recruitment, causing a small increase in the unemployment rate.
WEDNESDAY 18 DECEMBER
UK CPI Inflation, November
2.3% previous
2.3% forecast
With the consumer side of the economy clearly lacking momentum, we are forecasting no change in the rate of inflation in November.
THURSDAY 19 DECEMBER
UK Base Rate Decision, December
4.75% previous
4.75% forecast
Guidance from the MPC has hinted that the next cut for the Base Rate will come in 2025. Disappointing GDP data lately means a surprise cut is not out of the question, but our forecast is for no change this month with a 25 bps cut coming in February.
