US/Sino trade tensions are rising. US President Trump’s announcement of new tariffs on Chinese imports has prompted threats of retaliation by China, posing downside risks to the global economy as supply chains are disrupt and business sentiment suffers. Meanwhile, UK Q1 GDP data highlights the resilience of the UK economy.
The US economy is the main engine of global growth, posting higher than expected growth in Q1 2019. In China, latest GDP data hints at a stabilisation in activity thanks largely to another sizeable fiscal boost. However, recent downbeat Euro area business surveys point to a continued sub-par performance in early 2019.
The EU granted the UK a further extension of Article 50, effectively pushing out the cliff edge to the end of October. Meanwhile, latest UK data was mildly reassuring, consistent with continued sluggish growth in early 2019.
This week is likely to see the EU grant a longer, but more conditional, extension to Article 50 than the UK Government has requested. Back in Westminster talks continue to try to find a set of proposals that can be passed by the House of Commons. Away from the politics, most economic data has been disappointing.
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.