Economic Highlights

The GDP print for October 2022 beat expectations, although much of the gain was attributed to a bounce back following the disruption caused by the Queen’s funeral and period of mourning in September. The construction sector was a notable area of strength relative to forecasts with a 0.8% jump in month-on-month activity and there was also a helping hand from the autumn Covid vaccination programme. Overall GDP was +0.5% month-on-month but still -0.3% on a rolling three-month basis, which probably better captures the weak underlying trend. Rightmove’s latest house price index showed a -2.1% fall in prices in December versus November, with annual gains now down to 5.6% from 7.2% previously. None of that should come as great surprise given widespread anecdotal evidence of price reductions by sellers. The RICS House Price Balance also plumbed new depths for this cycle, with a reading of -25%. Other than during early Covid, one has to go back to the aftermath of the financial crisis to find a more negative result.

The Producer Price Index for November came in higher than expected, although still down from October. The headline annual number was +7.4%, down from 8% but above the expected +7.2%. The core number was +6.2%, down from +6.7% and again higher than the expected +5.9%. Separately, there was an unanticipated rise in most of the components of the University of Michigan’s monthly sentiment survey, another slightly unhelpful piece of data for the Fed ahead of the Federal Open Market Committee (FOMC) meeting. Interestingly, sentiment increased more amongst Democrats, who were no doubt jubilant, having retained control of the Senate during the mid-terms. You might be surprised to see just how much relative sentiment has swung on a partisan basis in the last few years depending on the relative fortunes of the respective parties.

We have noted some recovery in sentiment indicators for Europe, with the latest being the Sentix Investor Confidence Index. That rebounded from -30 to -21, having been as low as -38 in October. The main reason seems to be the fact that natural gas inventories held up well during the autumn thanks to unseasonally warm weather. This reduced the prospect of shortages later in the winter leading to energy rationing and forced industrial production cuts. However, it is notable that the latest cold snap has seen European gas prices rise from a low of €84 per Megawatt hour at the turn of the month to €135. Although this remains well shy of the €311 peak in August, it is still multiples of the €10-30 range that prevailed pre-Covid, highlighting the deterioration in the EU’s terms of trade.

Both Exports (-8.7% year-on-year) and Imports (-10.6% year-on-year) were well short of expectations in November. This was testament to the disruption in the economy on account of the severe Covid-related restrictions. Weakness was also evident in both Producer Prices (-1.3% year-on-year) and Consumer Prices (+1.6%). November new loans and credit recovered from a weak October, but also fell short of forecasts. This might start to change now that the government is relaxing policy, although the risk of higher infection rates and fatalities suggests a still bumpy path ahead.