Economic Highlights

Hard data from the pre-election period remains dreadful, but post-election soft data has rebounded, leaving the MPC in something of a bind. To cut rates or to wait and see? For example, December Retail Sales came in at -0.8% (f/c +0.8%), concluding the worst ever run of negative monthly data. But the latest RICS House Price survey bounced from -11 to -2, suggesting renewed confidence. Market expectations of a January rate cut have risen from virtually zero to 71% this month.

One reason not to expect a US recession this year is the strength of the Housing Market. Housing Starts numbered 1.608m in December, well above even the most optimistic expectations. However, there is a note of caution to be taken from employment data, with Job Openings falling to 6.8m in November from a peak of 7.6m a year earlier. This will help to keep a lid on wages.

Germany’s budget surplus for 2019 came in at 1.5% of GDP, underlining its capacity to introduce fiscal stimulus. Perhaps feeling a bit guilty about its riches, the government announced an €86bn 10-year investment package for the rail network. More of this to come, one feels.

2019 GDP growth of 6.0%, the lowest for three decades (but not a great surprise), hogged the headlines, but the coincident data was more positive, with Retail Sales (+8.0%), Industrial Production (+6.9%) and Urban Fixed Asset Investment (+5.4%) all rising faster than forecast in December as the effects of fiscal and monetary stimulus kicked in.