Economic Highlights

UK GDP figures for the third quarter were a bit mixed. The month-on-month outcome was below expectations at -0.6% (versus the -0.4% expected) with some of the “blame” being put on the Queen’s mourning period when many businesses will have closed down. The quarter-on-quarter figure was better than expected (-0.2% versus a consensus forecast of -0.5%) although, of course, it still represented a contraction in economic activity. The better outcome here seems mainly to have been down to government spending (and is possibly not sustainable). There was also an unexpected beat for Fixed Capital Formation (+2.5% vs forecast +0.4%). We have been flagging the potential for a sharp slowdown in housing market activity and that is beginning to appear. The RICS House Price Balance Index fell to -2% in October from +32% (forecast +19%), while Rightmove showed prices falling 1.1% in the last month.

October’s inflation data provided a positive surprise to markets for only the third time in the last year. The headline Consumer Price Index rose 0.4% month-on-month (vs +0.6% expected) for a year-on-year figure of 7.7% (vs 7.9% expected). The core rate came in at +0.3% and 6.3% on the same basis, and was 0.2% below expectations on both counts. The was a reduction in Healthcare inflation, very much as expected, but the big positive surprise was in a lower-than-forecast rise in the rental component. It’s hard to know if that will persist given how much rents are up over the last couple of years and the lag in capturing this data in actual new rental agreements. Used car prices look to be on their way down and we might yet see further downward pressure on some goods prices as excess inventories are cleared ahead of Christmas. But underlying upwards pressures remain, especially in labour-intensive sectors where there is a shortage of workers.

Euro Area retail sales delivered a positive surprise. The volume of retail sales grew by 0.4% month-on-month in September after stagnating in the prior month (which was revised higher from a 0.3% contraction). All product categories excluding automotive fuelled the experienced monthly sales growth. On a year-on-year basis, retail sales contracted by 0.6%, beating expectations of a larger decline, and following an upwardly revised forecast of -1.4%. This positive surprise followed an unexpected acceleration in Germany’s GDP growth in the third quarter which was driven by consumption, as well as a marginal improvement in both German business sentiment expectations and Eurozone consumer sentiment. Activity is improving from very depressed levels but there is no big bounce ahead. The latest PMI data suggest the region is already in recession and the European Central Bank is not finished with policy tightening.

Total Social Financing or TSF (new credit across the economy) came in well below expectations for October. TSF was just RMB 908 billion, the low end of a five year range, versus an expected figure of RMB 1.6 trillion. It’s hard to know what is reliable data in China at the moment, given all the disruption wrought by the zero-Covid policy as well as the fact that the important National Party Congress took place in October. But, at face value, this suggests not much in the way of recovery ahead for the economy. The better news is that very low Producer Price (-1.3% year-on-year) and Consumer Price Indices (+2.1% year-on-year) continue to give the authorities plenty of leeway to stimulate.