Economic Highlights

UK GDP took a big and unsurprising hit in January as the country entered the latest lockdown, although the outcome was not as bad as expected. GDP fell 2.9% m/m (f/c -4.9%). It appears that, after almost a year of Covid, both consumers and companies have found ways to mitigate the worst effects. Had schools not been closed, the outcome would have been even better compared to the last lockdown. The main falls in activity were in accommodation and food services, and these will no doubt lead the recovery. These shortfalls were somewhat offset by the contribution of Covid testing and the vaccination programme -hardly (and hopefully not) a durable source of growth! Exports to the EU plunged by 40.5% and Imports from the EU by 28.9%, with Brexit effects to the fore. Some of that will be down to earlier stockpiling, but there are definitely "red tape" problems as well. It's too early to draw firm conclusions about future trade flows.

Although February CPI remained muted at 1.4% y/y, there are still plenty of signs of the ongoing economic recovery. The University of Michigan Consumer Confidence survey illustrates this trend. Overall sentiment jumped from 76.8 to 83 (f/c 78.5), with nice rises for both current conditions and expectations. The jobs market is also recovering, with JOLTS Job Openings rising from 6.65m to 6.92m (f/c 6.7m). Initial Jobless Claims also continued their decline from 754k to 712k (f/c 725k), matching the lowest weekly reading during this recovery. Continuing Claims are down to 4.14m, having almost reached 25m last May.

The ECB left headline policy unchanged, but committed to accelerated bond purchases as necessary within its current programmes. That was enough to calm nerves, although pessimists will point to possibility of their facilities running out earlier than planned. We continue to believe the ECB will find a way to expand their capacity if required.

The latest activity numbers from China illustrate the difficulties we shall face in interpreting economic data as we pass through the first anniversary of Covid disruption. Industrial Production in January and February (+35.1% y/y) and Retail Sales (+33.8%) both beat expectations, but, of course, benefitted from the figures being so bad a year ago. It could be a few months before a clearer picture emerges. However, we would expect to see some underlying deceleration now given the PBoC's gentle policy tightening in recent months.