Economic Highlights

October’s money supply and lending data suggest that households were cautious in the run up to the Budget, with precautionary savings rising. Consumer credit balances rose by £1.1bn, down from £1.2bn in September, but there was a £20.2bn rise in households’ bank deposits, the largest since December 2020 and a record outside the pandemic era (which saw a lot of distortions). Mortgage approvals were more positive, rising from 66,115 to 68,303 as mortgage rates fell from 4.9% in July to 4.4%, although that impetus has now stalled as bond yields have risen again. Sticky service sector inflation means that there is now a limited probability of another base rate cut from the Bank of England at this month’s meeting, although one is still expected in February.
 

The closely watched core PCE price index increased by 0.27% month-on-month in October for a year-on-year rate of 2.8%. That’s still a bit too high for the Fed’s comfort, although remains on a downward trend. One of the ironies of the US inflation data is that one its fastest growing components is financial services, with much of that inflation derived from the ad valorem fees charged on investment portfolios, which, of course, have been rising strongly, especially in the US. One would not necessarily wish for that to fall! A December interest rate cut hangs in the balance.
 

Manufacturing PMI data showed that industry remains in a broad-based recession across Europe, with only Spain of the four largest eurozone countries reporting a PMI reading above 50. Europe seems to be stuck now between the rock of the threat of US tariffs and the hard place of competition from China. More positively, unemployment in the region remains at the lowest level since inception of the series in 2000, although jobs growth is decelerating. The level stands at 6.3%. The ECB is the hot favourite to be next of the major central banks to cut rates, with four 0.25% reductions priced into futures markets over the next three meetings, starting in December.
 

Industrial profits in October fell by 10.5% year-on-year on flat revenues, illustrating the lack of momentum in the economy. Perhaps, though, they have reached some sort of inflection point, having risen from September’s level. There was a small tick up in the Caixin Manufacturing PMI for November from 50.3 to 51.5 (vs 50.6 expected), although Services slipped back a little from 52.0 to 51. 5 (vs 52.4 expected).