The week ahead 27 January 2025 - Trump calls for lower interest rates

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

In his address to the World Economic Forum in Davos, Switzerland, President Trump called for a lower oil price and interest rate cuts. Trump said: “I’ll demand that interest rates drop immediately. And likewise, they should be dropping all over the world. Interest rates should follow us all over.” It is not clear what the President means by “demand” given the Fed is independent on policy decisions, although behind the scenes lobbying probably goes on between many governments and their respective central banks. Trump also called on OPEC for a lower oil price arguing that would exert economic pressure on Russia to end the War in Ukraine. A fall for the oil price would dampen global inflation.

This is an interesting development as before taking office Trump showed little concern over the potential for his policies to stoke inflation and keep interest rates high. However, having now returned to the White House both interest rates and inflation are probably becoming pressing concerns for the new President. Trump also appeared to soften his line on tariffs on Chinese goods last week, another potential source of inflation.

Friday saw some mixed news on the UK economy. On the downside, consumer confidence fell sharply from -17 in December to -22 in January, according to GfK. This index has been volatile lately. On a more positive note, the UK composite PMI index increased from 50.4 in December to 50.9 in January, defying forecasts of a decline. The convention of the index is a reading over 50 suggests the commercial side of the economy is growing. Survey returns noted that the increase in employment costs in the autumn Budget had encouraged firms to introduce recruitment freezes. The manufacturing sector PMI remained below fifty, but increased from 47.0 in December to 48.1 in January. The services PMI nudged up from 51.1 in December to 51.2 in January.

This week sees two major central banks hold their rate setting meetings, namely the US Federal Reserve on Wednesday and the ECB on Thursday. The financial markets will be closely monitoring what is said at the press conferences.

In the case of the Fed it will be interesting to see if there is any hint rate setters ae rejecting or are open to Trump’s call for lower interest rates. Recent economic data for the US has been quite robust which does not support loosening policy. In the case of the ECB, there is now ample evidence of an economic slowdown in the Eurozone so the question is whether policymakers are ready to up the pace of rate cuts to support growth?

This week's figures

WEDNESDAY 29 JANUARY

Fed Interest Rate Decision, January

4.25%-4.50% previous
4.25%-4.50% forecast

US economic data has been relatively robust in recent months, which counts against a reduction in the policy rate at this time. The financial markets though are pricing in a cut of 25 bps in June.

THURSDAY 30 JANUARY

ECB Interest Rate Decision, January

3.00% previous
2.75% forecast

Although inflation has picked up slightly, we believe the ECB will focus on evidence the economy is slowing and cut its policy rate by another 25 bps.

FRIDAY 31 JANUARY

UK Nationwide House Price Index, January

4.7% previous
4.2% forecast

Many commentators were surprised by the strength of the December house price growth figures. The new year has seen mortgage rates rise, so we are predicting a modest deceleration.