Weekly Economic Report

This week brought significant developments for all key economies. Currency movements, important decisions on interest rates, and crucial economic indicators unfolded, shaping the economic outlook for these regions.

UK 🇬🇧 The British pound surged past the $1.27 mark, reaching its highest level since August 7th, as investors processed recent central bank activity alongside stronger-than-expected PMI and consumer confidence data.

Unemployment Rate

• Remained unchanged at 4.2%.
• Resulted from a fall in vacancies since September '23 (more than 949,000, a 2-year low), with stronger nominal pay growth (rate of 7.3%).
• Almost 76% of people aged 16-64 are unemployed, while 20.9% remain economically inactive. The unemployment level increased by 13,000 for the overall population.

GDP MoM

• The UK economy returned to contraction, shrinking by 0.3% in October (Expectation was 0.1%) after 0.2% growth in September.
• The main cause behind this contraction was in all major sectors, particularly a decrease in service sector output (-0.2%) and production output (-0.8% vs 1.1% MoM).
• UK real GDP showed no growth.

Interest Rate Decision

• The Bank of England (BoE) held interest rates at 5.25% for the third time.
• Governor Andrew Bailey indicated no indication to cut down rates before inflation hit its target of 2%.
• BoE noted that consumer price inflation had fallen sharply from 6.7% to 4.6%, however, core inflation is higher at 5.7%, which is way higher than the USA and Euro area. Services price inflation also remained more elevated.
• Additionally, economic data indicated that UK private sector activity expanded the most in six months during December, primarily driven by a moderate upturn in services output. Furthermore, consumer morale improved in December, reflecting reduced pessimism among Britons regarding their future financial situation amid easing inflationary pressures.

EU 🇪🇺 The euro continued to hover below the $1.1 mark as investors processed the array of central bank actions from the previous week, alongside the latest PMI figures.

Interest Rate

• The European Central Bank (ECB) maintained its interest rate at 4.5%, and the deposit funding rate at 4% mainly due to lower growth forecasts.
• The ECB showed no indication of lowering rates soon despite a sharp fall in the eurozone inflation.

ECB Projections for 2024

• Real GDP Growth - 0.8%.
• Headline inflation - 2.7% vs 5.4% current headline inflation.
• Domestic price pressures will remain elevated, primarily because of growth in the cost of labour.

Eurozone YoY inflation moderated from 10.6% in Oct '22 to 2.4% in Nov '23, resulting in the ECB's 2% target in grasp. ZEW Economic Sentiment Economic sentiment in the Eurozone for the next 6 months surged to 23 from 13.8, reaching its highest point in 10 months, indicating growth in the Euro economy.

USA 🇺🇸 The dollar index held below 102 on Friday and was set to lose about 2% this week, weighed down by the prospect of interest rate cuts from the Federal Reserve next year. FED Interest rate decision

• The FED held rates steady at 5.25% - 5.5% and set the table for multiple cuts to come in 2024 as a result of inflation rate easing and economic holding in.
• FED policymakers indicated at least 3 rate cuts in 2024. Though it is less than market predictions, it is much more aggressive than what officials had said earlier.
• Policymakers stated that recent indicators showed slow growth and moderate job gains with a low unemployment rate.

FED Projections for 2024

• GDP Growth - 1.4% vs 1.5%.
• PCE Inflation - 2.4% vs 2.5%.
• Unemployment Projections - 4.1%.

Retail Sales MoM in the USA unexpectedly increased by 0.3% in Nov from a 0.2% fall in October. The reasons for that indicated a strong start to the holiday shopping season, excluding automobiles, gas, building materials, and food services. Other retail sales rose by a robust 0.4%.

The Core Inflation Rate in the USA (MoM) rose by 0.3% in November, mainly due to an increase in housing and other service sector costs.

Core Inflation YoY stood at an over 2-year low of 4% in November, as expected.

Producer Price Index showed steady growth in November, following a 0.4% fall in the last month to 0.1% growth, mainly due to stable prices of both goods and services.