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04 Feb 2025

Economic Highlights

Welcome to our Economic Highlights, bringing you market updates from across the UK, US, Europe and China, as well as the FTSE weekly winners and losers.

UK

London skyline showing the financial district

The main economic data released last week did little to move the needle. Money Supply and Lending data suggested that recent weaker consumer sentiment is not proving to be too much of a barrier to borrowing, with mortgage approvals ticking up from 66.1k to 66.5k in December. Net consumer credit outstanding rose by £1bn, a little better than in November (£0.9bn) but lower than the previous six-month average (£1.1bn). There is very little forward momentum in the economy today and last week’s efforts by Chancellor Reeves to focus on measures to boost growth will have done little to help. To be fair, we didn’t expect much by way of instant impact, and so it was all about increasing the confidence in future growth. The jury is out. There seems little to deter the Bank of England from cutting the base rate from 4.75% to 4.5% at this week’s meeting, with the futures market pricing in a 98% probability of such an outcome.

 

US

New York skyline

The US Federal Reserve (Fed) kept interest rates unchanged at 4.5% (upper bound) last week. A pause was largely expected following the comments made at December’s meeting, and this could well be extended until June or July as the Fed balances risks to growth (relatively minimal, it seems) with the risk of higher inflation (potentially increased by tariffs). It could be in a much worse position and at least has space below to cut rates if required. GDP growth in Q4’24 was recorded at 2.3% (quarter-on-quarter, annualised), which was below the consensus expectation of 2.6% (and down from 3.1% in Q3’24). However, there was a large drag from inventory accumulation (-0.5%) and consumption was stronger than forecast (+4.2%). The Atlanta Fed’s GDPNow model sees more of the same coming in Q1’25, with growth currently running at 2.89%.

 

Europe

EU flags

GDP failed to grow in Q4’2024, with the print coming in at exactly 0% vs Q3. Growth for the whole of 2024 was an uninspiring 0.9%. Germany is in a recession, recording annual growth of -0.2% in 2024. Unsurprisingly, then, the European Central Bank continued to cut its deposit rate from 3% to 2.75% with a promise of more to come. However, the inflation print for January was slightly disappointing, coming in at 2.5% at the headline level vs 2.4% in December (and that was also the consensus forecast). The core rate was 2.7% (unchanged vs December and higher than the 2.6% forecast). Even so, market pricing for another 0.25% ECB rate cut in March is over 100%.

 

China

China

China headed off on its Lunar New Year holiday in a sour mood, with US tariffs as an external threat whilst domestic consumption remains subdued. The latest Caixin Manufacturing PMI survey saw the index drop from 50.5 to 50.1 and so barely in growth territory. We note that a dollar can currently buy 7.24 yuan, and that’s before the latest round of tariffs. Any move through CNY7.30 would be worrisome as that is a level that has held in the past (thanks to some intervention, both verbal and monetary, by the Chinese authorities). It would indicate a potential “cut and run” policy shift by China and leave it open to accusations of currency manipulation from President Trump.

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