Economic Highlights

The Bank of England’s MPC held the base rate at 0.75%, which was not a great surprise following recent stronger survey data. However, the 7-2 margin in favour of standing pat was a bit wider than expected. The first pieces of “hard” data to appear for December, including Consumer Credit and Mortgage Approvals, suggest some justification for the hopes a post-election bounce, but the reality of Brexit combined with the coronavirus might well puncture some of the optimism.

US Q4 GDP growth came in at 2.1% vs a forecast 2.0%, leaving the full year at +2.3%. The core PCE inflation reading surprised to the downside at just 1.3%, which will keep the Fed in easing mode, but also leave it with even more to ponder in its forthcoming inflation policy review.

EU unemployment hit a new cycle low of 7.4%, which is encouraging. Eurozone aggregate GDP for Q4 and the whole of 2019 came in at +0.1% (f/c +0.2%) and +1.0% (f/c +1.1%) respectively. Core CPI is running at 1.1% y/y vs a forecast of 1.2%.  So a combination of sluggish growth and low inflation which will keep the ECB’s foot to the floor in terms of policy whilst also crying out for fiscal assistance.

The trouble with having a shrinking population is a potential shortage of workers, and that seems apparent in an Unemployment rate of just 2.2%. And yet lack of demand growth leaves core inflation still stuck at 0.9%.