The UK economy almost came to a halt in Q4 last year as mounting Brexit concerns took its toll on business investment. However, consumer spending maintains its gradual recovery, driven by higher real incomes.
Following a path laid by the US Federal Reserve, who recently adopted a more neutral position towards monetary policy, the Bank of England’s February Inflation report clearly signalled no urgency to raise rates. The 2019 growth forecast was cut sharply. The main culprits were mounting concerns about Brexit plus the wider global outlook.
Another strong US employment report and improved manufacturing sentiment contrasts with continued lacklustre Euro area growth and a downbeat Chinese PMI survey, highlighting diverging trends in the global economy.
Following the recent Grieve amendment, the chances of Parliament passing PM Theresa May’s Withdrawal Agreement tomorrow look very slim. A rejection would force Mrs May to unveil a Plan B next Monday. An array of outcomes is possible with an increasing chance of Article 50 being extended.
Initial reports from the UK high street during the festive period were mildly encouraging. Witness stronger than expected outturns from John Lewis and Next. Still, it is premature to draw strong conclusions about retailing.
UK workers received a Christmas bonus with the highest wage growth for a decade reported last week. The labour market is yet again the star performer in an economy that is otherwise losing a little momentum.
UK GDP growth picked up in Q3 but this bounce is likely to be fleeting, judging from latest downbeat business surveys.
The Bank of England’s latest forecasts show inflation staying above the 2% target, despite rising UK rate expectations. Prices should get a further boost from the looser fiscal policy announced in the Budget. But, as ever, all those forecasts hinge on a smooth Brexit.
The US economy is motoring along, driven by recent tax cuts, keeping the Fed on course for further gradual tightening in coming months. However, signs of weakness in the Euro area mean a rate hike is some way off.