Category: Economoney

Posted on

IMF recommends UK interest rates should be cut to 3.5% by end of 2025

UK Charts

The International Monetary Fund (IMF) advises that the Bank of England should contemplate reducing its interest rates to 3.5% by the end of 2025.

This suggestion is made as the UK’s economy steadily recovers from the recession caused by the pandemic, while policymakers are dealing with inflationary challenges.

The ‘thinking’ behind the recommendation

Economic Recovery and Inflation Outlook

The IMF’s recommendation is grounded in its assessment of the UK’s economic trajectory.

Growth Forecast

The International Monetary Fund has upgraded its growth forecast for the UK in 2024, signaling a positive outlook. It anticipates growth of 0.7% this year and 1.5% in 2025.

Inflation

The IMF anticipates that UK inflation will decline to near the Bank of England’s target of 2% and stabilise at this rate in early 2025, indicating that inflationary pressures are within manageable limits.

Soft Landing

The UK economy is said to be approaching a ‘soft landing‘ following the mild recession of the previous year. Policymakers are focused on finding a balance between fostering growth and managing inflation.

Monetary Policy Considerations

The Bank of England’s Monetary Policy Committee (MPC) has been closely monitoring economic indicators and inflation trends. Here’s why the IMF’s recommendation matters:

Interest Rate Peaks

The Monetary Policy Committee has indicated that interest rates might have reached their peak. The current restrictive monetary policy is having an impact on the actual economy and the dynamics of inflation.

Market Expectations

Analysts anticipate the first interest rate cut by September 2024 at the latest. Market expectations align with this projection, with the base interest rate likely to be lowered to 4% by the end of 2025.

Balancing Act

Policymakers face the delicate task of supporting economic recovery while preventing runaway inflation. The IMF’s suggestion aims to strike this balance.

Implications for Borrowers and Savers

Mortgage Holders

Variable Rate Mortgages

If you have a variable rate mortgage, a rate cut could reduce your monthly payments. However, keep an eye on your lender’s response to any rate changes.

Fixed Rate Mortgages

Fixed-rate borrowers won’t immediately benefit from rate cuts, but they should still monitor the situation. If rates continue to fall, refinancing might become attractive.

Savers

Savings Accounts

Lower interest rates typically lead to diminished returns on savings accounts. It may be wise to diversify your investments to seek potentially higher yields in other areas.

Fixed-Term Deposit

Current fixed-term deposits will remain unaffected; however, new deposits might generate lower yields. It is advisable to carefully assess your alternatives.

Conclusion

The IMF’s recommendation highlights the intricate balance between fostering economic recovery and managing inflation. As the Bank of England considers its next steps, it is crucial for borrowers and savers to remain informed and adjust their financial strategies as needed.

For homeowners, investors, and savers alike, grasping the potential consequences of rate cuts is key to making well-informed choices in an ever-changing economic environment.

Disclaimer: The information provided here is based on current projections and should not be considered financial advice. It is not given as financial advice – it is for discussion and analysis only!

Consult a professional advisor for personalised recommendations.

Remember – always do your careful research first!

RESEARCH! RESEARCH! RESEARCH!

Update

The Bank of England has given its strongest hint yet that interest rates could be cut this summer. This comment was observed in a recent speech given by the deputy governor of the Bank of England.

Posted on

UK retail sales flop 2.3% in April, missing estimates

UK retail sales

Wet weather was to blame for the U.K. retail sales volumes drop of 2.3% in April 2024.

Shoppers were deterred from the high street, the Office for National Statistics (ONS) said Friday 24th May 2024.

Economists expected a smaller retail sales fall of 0.4%.

Sales volumes declined across multiple sectors, with clothing retailers, sports equipment, games and toys stores, and furniture outlets experiencing a downturn as adverse weather conditions led to a decrease in customer visits, according to the ONS.

March’s figure was revised from flat to a 0.2% decline.

Sales increased by 0.7% over the three months leading up to April, compared to the preceding three months, despite a sluggish December and holiday season. However, there was a 0.8% decline when compared with the same period last year.

Will the Bank of England (BoE) drop interest rates in June now that inflation is down to 2.3% – close to the target of 2%?

Posted on

UK Prime Minister announces snap general election for 4th July 2024

UK election

On 22nd May 2024, UK Prime Minister Rishi Sunak announced a snap general election for 4th July 2024 This decision caught many by surprise, as the election was called more than around six months earlier than legally required.

Election Date: 4th July 2024 – let the fireworks begin

The Conservative Party, led by Rishi Sunak, is facing significant challenges in opinion polls, trailing behind the opposition Labour Party.

The economy, immigration, health services, and cost of living have been identified as key issues for voters.

Labour, led by Sir Keir Starmer, is considered the clear frontrunner, with a substantial lead in recent polls.

Since 2010, the Conservatives have seen five prime ministers: David Cameron, Theresa May, Boris Johnson, Liz Truss, and now Rishi Sunak.

Sir Keir described the past 14 years as “Tory chaos” and emphasised that it’s time for change.

So, the UK is gearing up for an early election, and the outcome will be closely watched both domestically and internationally

Posted on

UK headline inflation rate falls to lowest in three years but comes in hotter than expected

The April inflation came in higher than anticipated, falling to 2.3%, as reported by the Office for National Statistics on Wednesday 22nd May 2024.

Traders have now reduced their expectations of a June interest rate cut by the Bank of England (BoE). Markets reacted negatively in early trading.

The headline inflation rate decreased from 3.2% in March, marking the first instance since July 2021 that inflation has fallen below 3%, nearing the Bank of England’s target of 2%.

Contrary to the predictions of economists surveyed by Reuters, who expected a more significant drop to 2.1%, services inflation – a critical indicator monitored by the BOE due to its significance in the UK economy and as a gauge of domestically generated price increases – only fell marginally to 5.9% from 6%, missing the anticipated 5.5% from the BOE.

Core inflation, which excludes energy, food, alcohol, and tobacco, decreased to 3.9% in April from 4.2% in March.

The substantial decline in the headline rate was largely anticipated due to the year-on-year decrease in energy prices. However, investors shifted their attention to core and services inflation following indications from BOE policymakers of a potential interest rate cut later in the summer, contingent on new data.

After the data release, the market-makers probability of a June rate cut plummeted to 15% from 50% and the chance of an August cut also fell to 40% from 70%.

Lingering concerns over underlying inflationary pressures mean a June rate cut is unlikely. However, these figures may convince more rate setters to vote to ease policy, providing a signal that a summer rate cut is still a possibility.

Posted on

Nasdaq Composite Index hits a new all-time high on Monday 20th May 2024

Nasdaq all-time high

The Nasdaq is a stock market index predominantly comprising technology and internet-related companies. Investors and traders closely monitor its performance as it serves as a barometer for the technological sector’s robustness and the general market mood.

Nasdaq all-time high

The Nasdaq Composite surpassed its previous highest value, marking a significant milestone in its history.

Contributing factors

Tech success

The surge was propelled by robust performances from leading tech companies like Apple, Amazon, Microsoft, and Alphabet (Google).

Economic optimism

Positive economic data, the lingering promise of interest rate cuts, and optimism about future growth contributed to investor confidence.

Market sentiment

The all-time high indicates a positive sentiment in the stock market; however, it is crucial to keep an eye on current trends and potential corrections.

Note

Keep in mind that stock markets are subject to volatility, with prices capable of swift fluctuations. It’s crucial for investors to proceed with caution and take into account their individual risk tolerance before making any investment choices.

If in doubt – do nowt!

RESEARCH! RESEARCH! RESEARCH!

Posted on

U.S. debt and deficits are generating concerns about potential threats to the economy and financial markets

Debt burden

The federal debt reportedly reached $34.5 trillion, marking an increase of approximately $11 trillion since March 2020.

This surge has sparked discussions among government and financial leaders, with a notable Wall Street firm questioning whether the associated costs could threaten the stock market’s upward trend. The Congressional Budget Office projects that the public debt will soon surpass any previously recorded levels relative to GDP.

Federal Reserve Chair Jerome Powell has emphasized the urgency for elected officials to address this issue promptly.

Posted on

DOW does it – hits history high of 40000!

Dow Jones index up

The Dow Jones Industrial Average marked a historic achievement by closing above 40,000 points for the first time. On Friday 17th May 2024, the index increased by 134.21 points to settle at 40,003.59.

Concurrently, the S&P 500 saw a modest rise, while the Nasdaq Composite closed lower. The rise this week has shifted the three major stock indexes into the green for the second quarter, following a challenging start.

Despite some investors’ concerns about the sustainability of the rally, the mix of economic expansion and slowing inflation continues to act as a positive driver.

It’s an optimistic setup for the near future in 2024

Posted on

China is a major and critical world supplier and full decoupling may be impossible

Cargo shipping containers

Chinese firms are becoming increasingly optimistic about a rise in trade exports, as there is little evidence of global companies completely decoupling from China, Allianz Trade reports.

More than one in ten Chinese exporters, ranking as the second-largest exporter of goods to the U.S. following Mexico, anticipate an increase in exports.

While a total decoupling of supply chains from China may not occur, the option for diversification remains open.

The global economy is so interlinked it is virtually impossible to decouple China

See report here.

Posted on

Dow, S&P 500 and Nasdaq Composite all hit new highs as favourable data allows potential rate cuts to get ever closer – September 2024 looks likely

All three major indices closed at records on 15th May 2024

The Dow climbed 0.88%, while the S&P 500 gained 1.17%, ending the session above 5,300 for the first time. The tech-related Nasdaq Composite closed higher by 1.40%.

Dow closed at a new high of: 39908

S&P 500 closed at a new high of: 5308

Nasdaq Composite closed at a new high of: 39908

Posted on

U.S. wholesale prices rose 0.5% in April 2024 – exceeding expectations

U.S. PPI up

Wholesale prices surged unexpectedly in April, presenting another potential obstacle to any imminent cuts in interest rates.

The Producer Price Index (PPI), which tracks the average trajectory of selling prices received by domestic producers for their output, increased by 0.5% in April. It also showed a 2.2% rise on a year-over-year basis, representing the most significant annual gain.

The rise in services prices was a significant contributor to the overall increase in wholesale inflation, with a 0.6% uptick that represented approximately three-quarters of the total headline gain.

The core PPI, excluding volatile food and energy prices, also experienced a 0.5% increase, surpassing the estimate of 0.2%.

Posted on

Much Ado About Nothing – UK GDP and the ‘r’ word

UK recession is over... already!

The U.K. economy has recovered from its ‘technical’ recession, with the gross domestic product (GDP) increasing by 0.6% in the first quarter, surpassing expectations.

Official figures released on Friday revealed this growth, which exceeded the 0.4% predicted by economists surveyed by Reuters for the previous quarter.

In the latter half of 2023, the U.K. experienced a mild recession due to ongoing inflationary pressures impacting economic performance.

Technically there is no official definition of a recession – however, two straight quarters of negative growth is widely accepted as a technical recession.

The production sector in the U.K. saw an expansion of 0.8% from January to March, whereas the construction sector experienced a decline of 0.9%. The economy witnessed a growth of 0.4% in March on a monthly basis, succeeding a 0.2% increase in February.

According to the Office for National Statistics, the services sector, which is vital to the U.K. economy, grew for the first time since the first quarter of 2023. This growth of 0.7% was primarily propelled by the transport services industry, marking its most significant quarterly growth since 2020.

Much Ado About Nothing

‘Much Ado About Nothing’ is a comedy by William Shakespeare, written around 1598 – 1599. The play is included in the First Folio, published in 1623, and is set in the Italian city of Messina.

Posted on

UK interest rate held at a 16-year high as Bank of England holds rates at 5.25%

On hold

The decision comes as inflation, which measures price rises over a period of time, remains above the Bank’s 2% target at 3.2%. But bank says cuts are coming.

Is the 2% target still a sensible benchmark?

The 2% inflation target set by central banks has been a widely adopted benchmark for monetary policy.

History

The 2% inflation target became prominent in the 1990s and early 2000s. Central banks, such as the Federal Reserve and the Bank of England, have aimed to maintain inflation at this level.

The Federal Reserve has typically pursued an inflation rate of about 2% since 1996.

In January 2012, then-Fed Chairman Ben Bernanke formally established the 2% target, and subsequent Fed chairs have continued to endorse this rate as the preferred level of inflation.

Why the 2% target?

Price stability

The 2% inflation target was selected as it provides a balance between preventing problematic inflation and avoiding damaging deflation. Does it work?

Avoiding deflation

Deflation, characterized by falling prices, can hinder economic growth. Central banks target a 2% inflation rate to avert deflation and ensure stability.

Creditor-Debtor compromise

The 2% inflation target represents a balance between creditors’ preference for lower inflation and debtors’ inclination towards higher inflation.

Challenges

Changing economic environment

In recent years, the global economy has encountered distinct challenges, including sluggish growth, technological upheavals, and demographic changes. Consequently, there is a debate on whether the 2% inflation target requires reassessment.

Persistently low inflation

Despite the efforts of central banks, inflation has persisted below the 2% mark in numerous advanced economies, sparking debates over the potential need to modify the target.

Trade-offs

Aiming for a 2% inflation rate can occasionally clash with other policy objectives, like employment or financial stability. It’s crucial for central banks to judiciously manage these competing priorities.

Revision

Several central banks are revising their strategies. For example, the European Central Bank (ECB) has adopted a more adaptable inflation target, permitting temporary exceedances to balance out extended periods of below-target inflation.

The Bank of England also considers broader economic factors when setting policy, rather than rigidly adhering to the 2% target.

IIn summary, although the 2% inflation target has been a helpful benchmark, central banks are progressively willing to adjust their strategies in response to evolving economic conditions. The current debate focuses on striking an optimal balance between stability, growth, and adaptability.

Central banks saw this period of inflation as ‘transitory’ – it wasn’t. It could be argued that their lack of action led to a bigger inflation problem overall.

Posted on

IMF warns U.S. and China trade divisions threaten a ‘reversal’ for global economy

U.S. & China trade tensions

Tensions between Washington and Beijing have intensified, with the U.S. ramping up trade restrictions and sanctions on China due to national security concerns.

Since Ukraine’s invasion, there has been a roughly 12% drop in trade between the blocs, and foreign direct investments have decreased by 20% compared to those within the bloc’s constituents.

If these divisions persist, the IMF forecasts that the economic impact on global GDP could be as high as 7% in the worst-case scenario.

A senior International Monetary Fund official cautioned on Tuesday, 7th May 2024, that the rift between the U.S. led Western and China-aligned economic blocs endangers global trade cooperation and economic growth.

Posted on

FTSE 100 in record territory

The FTSE 100 soared past 8300, reaching a new record high amid busy trading as London markets reopened after the bank holiday.

A catch-up trading session is evident, with mainland-listed stocks having a robust session on Monday 7th May 2024 and continuing to rise. The FTSE reached around 8335 in intraday trading.

Wall Street also experienced another positive session, with the Dow Jones climbing for the fourth consecutive day following the Federal Reserve’s less aggressive stance, and the S&P 500 gaining too. Despite mixed results, earnings have bolstered risk appetite. The low U.S. job count has encouraged traders/investors to take heart that rate cuts will be on the agenda again soon, even if they are now late.

Bank of England

Attention will now turn to the Bank of England (BoE), which faces a decision on whether to guide the market towards a rate cut – the first in four years – or to exercise more patience. The consensus is that it’s premature for a cut this week, with August 2024 being the more likely date, although the Monetary Policy Committee’s (MPC) opinions vary.

Last month the Deputy Governor of the BoE, indicated his readiness to vote for a rate cut with little additional evidence of declining inflation, highlighting the ‘downside risks’ to the BoE’s February inflation forecast. In contrast, the Bank of England’s Chief Economist, expressed a more cautious stance in April regarding the initiation of rate cuts.

Inflation

Inflation is on a downward trajectory, expected to return to 2% in the next few months. CPI decreased from 3.4% to 3.2% between February and March 2024, and core inflation dropped from 4.5% to 4.2%. However, the BoE is likely to await April’s data before taking any decision.

Persistent wage growth of around 6% indicates continued strength in the labour market. Financial markets anticipate a Bank of England rate cut by August 2024, but it is believed the BoE may be prepared to act as early as June 2024, aligning with the anticipated policy move by the ECB.

Posted on

U.S. job growth totalled 175000 in April 2024 – less than expected

Non-farm payroll U.S.

Non-farm payrolls rose by 175,000 in the month, falling short of the consensus estimate of 240,000.

The unemployment rate increased slightly to 3.9%, contrary to expectations that it would remain at 3.8%. Additionally, a broader measure of unemployment rose to 7.4%, marking the highest rate since November 2021.

In line with recent patterns, the health care sector led job gains with an increase of 56,000. Notable growth was also seen in social assistance (31,000), transportation and warehousing (22,000), and retail (20,000).

In response to the job data update, market traders now anticipate a strong chance of two interest rate reductions by the end of 2024.

Stock markets jumped higher on the news.

Posted on

UK predicted to have slowest growth of richest nations in 2025

Slow growth in UK

Forecasts indicate that the UK economy will experience sluggish growth among the largest developed nations in 2025.

The Organisation for Economic Co-operation and Development (OECD) has projected a 1% increase in the UK’s gross domestic product (GDP) for 2025, which lags behind the growth rates of other G7 nations, including Canada, France, Germany, Italy, Japan and the US.

The OECD, a globally recognised think tank, has described the UK’s economic outlook as ‘sluggish‘ for the current year. The organization attributes the lackluster performance to the cumulative effects of consecutive interest rate hikes in the UK.

Additionally, the OECD has cautioned that persistent elements of high inflation and the uncertainty surrounding the Bank of England’s interest rate decisions may deter investment.

The latest forecast for the UK economy predicts a 0.4% growth for this year, a revision downward from the OECD’s earlier estimate of 0.7% growth. Consequently, Germany is the only G7 country projected to have slower growth than the UK this year.

Year on year economic growth predictions for G7 nations from the OECD

Year on year economic growth predictions for G7 nations from the OECD
Posted on

Are U.S. banks at risk of failure?

Banks at risk?

The fragility of U.S. banks: A looming financial crisis or an event unlikely to unfold?

Amid escalating interest rates and economic instability, an alarming report has surfaced, suggesting that a considerable number of U.S. banks are on the verge of collapse. This potential looming crisis is attributed to various elements that have jeopardised stability.

Hundreds of small and regional banks across the U.S. are feeling stressed.

A recent publication on the Social Science Research Network indicates that up to 186 banks in the United States may be at risk of collapse or at least severe financial damage due to a significant amount of uninsured deposits and the effects of monetary tightening.

The Federal Reserve’s policy to raise interest rates has resulted in considerable asset reductions of these banks. The study emphasizes the susceptibility of banks that depend largely on uninsured depositors, who hold account balances above the FDIC‘s insurance limit of $250,000.

The precarious situation could worsen due to a potential domino effect. Should a substantial number of uninsured depositors suddenly withdraw their funds, it ‘might’ prompt a banking crisis, endangering even insured deposits. It is estimated that nearly $300 billion in insured deposits could be at risk in such an event. Remember the financial crises of 2008/2009 – it wasn’t that long ago.

Silicon Valley Bank

The collapse of Silicon Valley Bank, for example, highlights the risks associated with rising interest rates and significant withdrawals of uninsured deposits. The bank’s failure to fulfill its obligations resulted in its shutdown, which had an impact on the financial sector.

Although the number of FDIC insured institutions on the so-called ‘Problem Bank list‘ has decreased, the current economic climate has reignited concerns about the stability of smaller banks, particularly those with assets under $10 billion.

These banks face threats from commercial real estate loans and the repercussions of rising interest rates, which could lead to unrealised losses and strain their capital reserves.

As the situation unfolds, it becomes clear that without government intervention or strategic recapitalisation, the U.S. banking system could approach a crisis. This potential crisis could affect not only the banks but also the wider economy and the communities they serve.

Therefore, vigilant oversight and proactive measures are crucial to maintain the stability of the U.S. and the global financial system and protect depositors’ interests.

Posted on

Fed foe inflation forces U.S. to hold rates and they will likely remain high for some time yet!

U.S. economic health

The Fed have deliberated over ‘transitory’ inflation – (they got that wrong). They have teased us about when rates will be cut (still waiting). And now we are told no rate cut but: ‘the next rate move is unlikely to be up!’

Probably better to say and do nothing at all? Are you a bit confused? I am.

The U.S. central bank has decided to maintain interest rates, reasoning a ‘lack of further progress’ in reducing inflation. This leaves the Federal Reserve’s key rate at its highest in over two decades, between 5.25% and 5.5%.

Sticky problem

By maintaining high borrowing costs, the Federal Reserve seeks to decelerate the economy and reduce inflationary pressures. However, this also increases the financial burden on businesses due to elevated borrowing expenses and on consumers through higher mortgage and loan payments.

However, as U.S. inflation remains more stubborn than anticipated (and that is being generous), the Fed is now being closely scrutinized over its forthcoming actions.

Analysts, who had predicted rate reductions early this year, have had to delay their projections, with some even suggesting a potential rate hike.

No rate cuts but ‘hike’ unlikely – that’s helpful then

Following the declaration, the Fed Chair reportedly expressed his belief that a rate hike is ‘unlikely,’ reiterating the need for more assurance of subsiding inflation before considering a reduction.

‘The decision will truly be data-dependent; it’s going to take longer to reach that point of comfort. I don’t know how long it will take’, he reportedly stated.

Posted on

UK house prices fall as lenders raise mortgage rates

House lenders increase rates

House prices declined in April 2024, with affordability pressures persisting for potential buyers, as reported by Nationwide.

The UK’s largest building society reported a 0.4% decrease in house prices compared to the previous month. The average cost of a home now stands at £261,962, which is 4% lower than in the summer of 2022 peak.

According to the report, the increase in borrowing costs was a significant factor in the recent drop in prices.

In recent days a string of lenders raised rates on new fixed-rate mortgage deals.

The rise was driven by expectations that the Bank of England (BoE) would implement fewer and more gradual interest rate reductions.

Posted on

Euro zone inflation steady at 2.4%

Euro Zone Inflation

Inflation rates in the euro area remained constant at 2.4% in April 2024, and the economy experienced growth in the first quarter, as indicated by preliminary figures released on Tuesday.

Headline inflation at 2.4% aligned with economists’ forecasts, while monthly inflation registered at 0.6%. Core inflation, which excludes energy, food, alcohol, and tobacco, fell to 2.7% from March’s 2.9%.

Energy prices’ year-on-year decline softened to -0.6% from -1.8% in March. Meanwhile, the gross domestic product increased by 0.3% in the first quarter, slightly exceeding economists’ expectations.

However, the GDP for the fourth quarter of 2023 was revised from no growth to a contraction of 0.1%, indicating a technical recession in the euro zone for the latter half of the year.

There is growing anticipation that the European Central Bank (ECB) may reduce interest rates at the upcoming monetary policy meeting on 6th June 2024.

Posted on

WEF president warns about global debt levels

Global debt burden

Borge Brende, the president of the World Economic Forum (WEF), recently issued a stark warning about global debt levels.

Speaking at the ‘Special Meeting on Global Collaboration, Growth and Energy for Development‘ in Riyadh, Saudi Arabia, (see WEF website), he highlighted that global debt ratios are approaching levels not seen since the 1820s.

The WEF president also reportedly emphasized the risk of ‘stagflation‘ for advanced economies. He cautioned that without appropriate economic measures, the world could face a decade of low growth.

The current global growth estimate stands at around 3.2%, down from the 4% trend growth seen for decades. Brende urged governments to address the mounting debt situation and implement prudent fiscal measures to avoid triggering a global recession. 

He also noted the persistence of inflationary pressures and suggested that generative artificial intelligence could offer opportunities for developing nations. The International Monetary Fund (IMF) concurs with this concern, reporting that global public debt reached 93% of GDP last year, still 9% higher than pre-pandemic levels. 

The IMF projects that global public debt could approach 100% of GDP by the end of the decade.

Posted on

Recent U.S. data is indicating inflation is proving stubborn and isn’t going away anytime soon

Inflation has become a persistent challenge for the Fed

The battle against inflation persists, gradually impacting the U.S. economy and presenting substantial challenges for the Federal Reserve.

Despite concerted efforts to control it, inflation remains stubbornly remains, leaving policymakers in a dilemma – to stimulate economic growth or to curb spiraling prices.

Let the data speak

Recent data presents a concerning scenario. Indexes from the Commerce Department, used by the Federal Reserve as indicators of inflation, reveal that prices are rising at a rate significantly exceeding the central bank’s annual target of 2%. Consumer spending persists, encouraged by the excessive amount of money circulating in the financial system.

However, this spending spree isn’t sustainable, and consumers are dipping into their savings to fund purchases. The personal savings rate has plummeted to its lowest level since October 2022. Borrowing is up and debt is far too high!

The Federal Reserve’s primary inflation gauge, the personal consumption expenditures price index, rose to 2.7% in March, encompassing all items. The crucial core index, excluding the more volatile food and energy prices, remained constant at 2.8%. These figures highlight the ongoing inflationary pressures.

Fed’s dilemma

The Federal Reserve is navigating a precarious inflation situation. Should it shift towards rate reductions prematurely, there’s a risk that inflation might surge back in 2024. Conversely, persistent inflation could compel central bankers to not only sustain the present rates but also ponder additional increases. The aspiration for a gentle economic descent is at stake.

Outlook

Forecasters anticipate inflation to dip below 2.5% in 2024, yet challenges persist. The Federal Reserve faces the difficult task of steering the economy towards stability and controlling inflation expectations. With the central bank’s policy meeting on the horizon, speculation abounds regarding their forthcoming strategy.

Will they maintain the current interest rates or implement more assertive measures? Their decision is set to influence the economic outlook for the foreseeable future.

Conclusion

U.S. inflation continues to be a persistent challenge, and the Federal Reserve’s efforts are ongoing. The path forward demands cautious steering, as policymakers must achieve a fine equilibrium to sustain economic stability while simultaneously curbing inflation.

And remember, the Fed said inflation was ‘transitory’.

Posted on

U.S. GDP slows to 1.6% significantly below expectations

U.S. GDP

The gross domestic product (GDP) from January to March 2024, grew at an annualised rate of 1.6%, significantly underperforming the projected 2.4%.

The personal consumption expenditures (PCE) price index, crucial for the Federal Reserve’s inflation assessments, climbed at an annualised rate of 3.4% for the quarter, marking the largest increase in a year.

Meanwhile, consumer spending rose by 2.5% during the quarter, a decrease from the 3.3% rise in the previous quarter and falling short of the 3% expectation.

U.S. GDP from Q1 2021 – Q1 2024

U.S. GDP from Q1 2021 – Q1 2024
Posted on

FTSE 100 closes at new all-time high

FTSE 100 Index

The UK FTSE 100 stock index has reached a new record closing price on Monday 22nd April 2024

The new all-time high was likely propelled by a weakening pound and reduced tensions in the Middle East. The FTSE 100 has been the laggard for many months.

The index concluded Monday at 8023 points, setting a new record and eclipsing its previous peak of 8012 from February of the preceding year.

At the close, it had risen by 1.62%, with retailers such as, Tesco, Sainsbury’s, M&S and Ocado being among the top gainers of the day.

The shares have gained from the depreciating pound since the London Stock Exchange index includes numerous companies with significant international operations.

A depreciated pound lowers the cost of exported goods for overseas buyers and boosts the value of international business transactions.

Update

On Tuesday morning 23rd April 2024 the FTSE 100 climbed to a new intraday high of: 8080

FTSE 100 5 day chart showing the intraday high of Tuesday morning 23rd April 2024
Posted on

IMF says Russia is expected to grow faster than all advanced economies in 2024

Oil

The International Monetary Fund calculates that Russia’s economy will expand more rapidly than all advanced economies this year.

According to the latest World Economic Outlook released by the IMF, Russia’s economy is projected to expand by 3.2% in 2024.

This growth outpaces the anticipated growth rates for the U.S. at 2.7%, the U.K. at 0.5%, Germany at 0.2%, and France at 0.7%.

G7 growth percentages

  • Russia at 3.2%
  • U.S. at 2.7%
  • France at 0.7%
  • U.K. at 0.5%
  • Germany at 0.2%

The forecast may be galling for Western countries that have endeavoured to economically isolate, restrict and punish Russia for its invasion of Ukraine in 2022.

Russia has demonstrated that Western sanctions on its industries have made it more self-sufficient and that private consumption and domestic investment remain resilient.

Oil exports

Oil and commodity exports to nations such as India and China, (two of the largest countries in the world by population) – as well as alleged sanction evasion and high oil prices, have allowed Russia to maintain strong oil export incomes streams.

UK and Europe growth

Outside of Russia, the IMF has revised its forecasts for Europe and the UK, projecting a growth of 0.5% for this year. This positions the UK as the second-lowest performer within the G7 group of advanced economies, trailing behind Germany.

The G7 also includes France, Italy, Japan, Canada and the U.S.

However, UK growth is expected to improve to 1.5% in 2025, placing the UK in the top three best G7 performers, according to the IMF.

The IMF also reported said that interest rates in the UK will remain higher than other advanced nations, close to 4% until 2029.

Posted on

Bank of England school report: must try harder – a brutal analysis of ‘out of date’ systems

Bank of England forecasts

The Bank of England (BoE) stands as a bastion of economic stability, guiding the United Kingdom through the ebbs and flows of financial tides. 

Modernising the Bank of England’s forecasting system has become a critical necessity. A recent independent review has cast a spotlight on the ‘serious deficiencies’ within its economic forecasting system, calling for an urgent modernisation.

Out of date forecasting methods

What have they all been doing for all these years to not have updated their systems?

The review, led by Dr. Ben Bernanke, a former chair of the U.S. Federal Reserve, paints a picture of an institution grappling with outdated systems and under-investment in critical infrastructure. The Bank’s staff, the report suggests, are hindered by software that is not just out-of-date but also complicates the already intricate task of economic forecasting.

This revelation comes at a time when accurate economic forecasting is more vital than ever. The world is still reeling from the effects of the pandemic, the 2008/2009 financial crisis and the UK faces unique challenges post-Brexit. The Bank’s ability to predict economic trends accurately is paramount in crafting policies that safeguard the nation’s financial health.

Deficiencies

The deficiencies highlighted are not just a matter of outdated software; they reflect a deeper need for a paradigm shift in how economic data is handled and analysed. The report recommends a complete overhaul of the system, emphasizing the need for automation of tasks that are currently performed manually.

Governor Andrew Bailey’s reportedly responded to the review by acknowledging the gravity of the situation, stating that updating the Bank’s systems is a ‘high priority’. This commitment to modernisation is a step in the right direction, but it should be followed by swift and decisive action, surely.

A broken compass?

The Bank of England’s forecasting system is more than a tool; it is the compass by which the nation navigates its economic future. Modernising this system is not just a recommendation; it is an imperative. As the UK charts its course in a rapidly changing global economy, the reliability and sophistication of its economic forecasting are not just beneficial but essential for continued prosperity.

In conclusion, the Bank of England’s economic forecasting system is at a crossroads. The call to modernise is clear, and the path forward must be paved with innovation, investment, and a steadfast commitment to excellence in economic stewardship.

The future of the UK’s economy depends on it.