Ulster Economix

Just as economists started winding down – this newsletter will see you again in 2024 – central banking delivered a touch of drama to interrupt the Christmas lunches. US monetary stance softening made waves in markets and introduced a new phase in the divergence between American and European macroeconomic realities. Although the UK’s disappointing GDP update was counterbalanced by rising consumer confidence, Britain approaches the new year in a more fragile position than our friends across the ocean.

UK, US, and Eurozone central banks will announce the year’s final policy interest rates this week, most likely holding steady. They want to see further evidence of disinflation and labour markets cooling – and to assess the lagged impact of monetary tightening. Price stability may be at the top of central bankers’ Christmas wish lists, but economists generally will also be asking for decent productivity growth, uninterrupted global supply chains and progress on decarbonisation in the months and years ahead.

When it’s cold and dark, we naturally look forward to the warmth and light of festivities ahead. For the UK economy, we can with reasonable confidence anticipate some future vantage point from which we will be able to look back on the difficult recent period of inflation and monetary tightening. The next official statistics on inflation will likely show gradual progress. Confidence about other outcomes, though, notably long-term productivity growth and global decarbonisation, can feel more like a leap of faith.

Updates last week from the Chancellor and the fiscal watchdog, the OBR, took a lot of digesting. As the Autumn Statement headlines and Thanksgiving sales fade away, for many of us the key financial figures to watch will be heating bills and Christmas shopping receipts. The big picture for the UK is an economy hobbling along under the shadow of high interest rates, though with a sense of relief that we have so far avoided a recession.