UK Economy

November 18, 2019

A range of data was released for the UK economy last week. The jobs data was broadly in line with expectations, with the unemployment rate falling to 3.8% and average earnings rising by 3.6%. However, a slowing rate of jobs growth and increasing inactivity rate pointed to some softness in the economy. Elsewhere, there continued to be good news for consumers with the inflation rate for October coming in at 1.5% against 1.6% expected and 1.7% in the prior month. This enhances workers real incomes and will provide a greater incentive for the Bank of England to cut rates. The main downward pressure on inflation came from energy prices which were impacted by the government price cap being revised lower. Finally, economic growth for the third quarter was 0.3%, taking the year on year figure to 1%, slightly behind expectations. The data continues to be highly confused as preparations for Brexit and subsequent unwinding have influenced the figures, making monthly data highly volatile. Nevertheless, while the UK economic growth continues to be lacklustre, it does not appear to nearing a recession, as many feared would be the case earlier in the year.

US Inflation

Figures out last week showed that headline US inflation crept higher in October, to 1.8% from 1.7% in the prior month. However, the core inflation rate, that strips out volatile items such as energy prices, moderated to 2.3% from 2.4%. Overall, the figures did not provide a surprise to markets and are well within the Federal Reserves expectations. As a result, the likelihood of an additional cut to rates in December has fallen, with the Fed guiding that a further deterioration in the economy was needed for them to act. Indeed, following the rate cuts this year and the improving trend of economic data, the market is now only pricing in the potential for one cut next year, down from three several weeks ago.

Election Watch

With the UK election now well underway, the pollsters are out in full force attempting to correctly predict the result and restore their damaged reputations. With such significant errors in the Brexit referendum and 2017 general election, observers are now not so keen to trust poll results. However, the current predictions are suggesting that the Conservatives will win a large majority, giving Boris Johnson the opportunity to pass is withdrawal deal and implement his policies without the threat of an uncooperative parliament. Nevertheless, with four weeks to go, leadership debates yet to take place and the unpredictability of the electorate, no one is willing to call the outcome yet. While UK equities and sterling have maintained some of the gains that were achieved following the extension agreement, it would appear investors are waiting for further clarity from the election before committing further.

Market Data

  % 1w* % 1m*
UK -0.15% 2.25%
US 0.89% 3.70%
Europe ex UK 0.20% 2.67%
Japan -0.41% 3.01%
Emerging Markets -0.60% 1.71%
Oil 1.54% 6.27%
Gold 0.56% -2.33%