Economic Highlights

As the Bank of England prepares for its rate-setting meeting this week it can ponder the latest lending data, which was a mixed bag. Net Consumer Credit Growth was just £0.7bn vs an expected £1.0bn, suggesting less appetite to borrow. Recent figures had been stronger, although nobody could be sure whether that was a function of confidence or a sign of distress as households borrowed to pay bills. Mortgage borrowing and approvals both beat expectations, surprisingly, although remain in a falling trend, which is expected to persist in the face of much higher mortgage rates. Higher-than-expected money supply growth is believed to have been caused by pension funds dash for cash during the post-“mini” budget solvency crisis.

US GDP rose by an annualised 2.6% in the third quarter, better than the expected 2.4%, although, digging down, the figure was weaker. Domestic final sales were essentially flat, while a smaller decrease in inventories, government spending and a stronger export balance were supportive. Personal Consumer Expenditure (PCE) data held no nasties and was even a touch better than might have been hoped for. Key figures were the PCE Deflators (a reading of inflation favoured by the Federal Reserve). While they were still on the rise, neither was quite as high as forecast, with the headline figure showing prices rising at 6.2% year-on-year and the Core at 5.1%. The final University of Michigan Consumer Confidence survey readings showed a slight tick up in sentiment from the preliminary figures, with a marginal reduction in the 1-year ahead inflation expectation to 5.1%.

Although the European Central Bank (ECB) raised its key rates by 75bps as expected, leaving the Deposit rate at 1.50%, there were a couple of points of note. First, President Lagarde made it clear that more tightening was necessary. However she also made a reference to needing to take account of the likelihood of any recession in its decision making. Second, the ECB did not discuss plans for Quantitative Tightening. Instead the Governing Council (GC) will discuss this at December’s meeting, suggesting no urgency to begin the process. Third, later news reports suggest that the GC's rate decision was not unanimous, with three members preferring a 50bp hike. This elicited a dramatic move in bond markets. The German 10y Bund yield fell back by 15bps on the day (and 25bps from the day's peak). The euro was also weaker in response to these comments that were interpreted as “dovish”.

There was very little data released in China last week, and nothing impactful after the GDP numbers, which we discussed at the time. However, we note an article in the Economist (and another one in the FT) referencing work that analyses satellite images of China looking at night-time light intensity. The economist who produced the analysis concluded that China has been massively overstating its growth in official data for years. The fact that many previously available data series have been discontinued makes it even harder for outsiders to sense check the headline statistics. We have always thought that it was improbable that such a huge and populous country could release quarterly GDP data as quickly as it does (well before any G7 country). Apparently, many autocracies display a similar discrepancy between reported and observed activity.