New Rules

It’s Budget week. And it looks set to be a momentous one. We already know some new fiscal rules are on the way.? In the meantime, the UK appears to have encountered a little speed bump, with the PMI dropping to an 11-month low in October. However, there are hints in the surveys, not to mention decent fundamentals, that the economy’s perfectly capable of bouncing back. Elsewhere, the eurozone grapples with stagnation and declining business confidence, prompting whispers of quicker ECB rate cuts, while the US signals steady growth and easing inflation. On a brighter note, the IMF predicts UK growth will climb to 1.1% in 2024, and solar power is forecast to be the biggest source of electricity supply by the mid-2030s!

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Check out a glossary of key terms here .

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What’s the latest in the UK?

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Stalling growth amid budget related nerves. The UK Composite PMI fell to an 11-month low in October as businesses paused projects, awaiting clarity of the fiscal landscape. At a sector level, both manufacturing and service PMIs declined, reflected in weaker new orders and the employment sub-indices. The latter was particularly weak, turning to contraction for the first time this year. Nevertheless, momentum in both new orders and business confidence remain stable at healthy levels, suggesting that economic activity could bounce back once uncertainty subsides. On the price front, firms expanded margins at the fastest pace since December, potentially keeping the Bank of England on the cautious side as it debates the pace of rate cuts in coming months. Read more here .

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Consumer confidence dropped again amid Budget uncertainty. The Gfk index fell to -21 in October, driven by anxieties over the upcoming Budget, reversing six months of gains. While the overall sentiment dipped, the major purchases index improved, indicating potential resilience in consumer spending. And it’s worth noting that retail sales have performed rather well in recent months. Confidence in the economic outlook and personal finances showed mixed results, but a rise in the saving balance suggests increased caution. Ofgem’s recent 9.5% price cap hike has also impacted sentiment. Read more here .

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New rules. One of the safest bets ahead of the UK budget has been on a new set of fiscal rules and we got a glimpse of what that looks like in an article from the Chancellor, Rachel Reeves. ?We know there'll be two components: a "stability rule" that forces day-to-day spending not to exceed tax revenues; and an "investment rule" which requires public sector debt to be falling as a share of the economy. ?The stability rule is very reminiscent of Gordon Brown's golden rule, only to borrow to invest, introduced by the then new labour chancellor in 1997. Back then, Brown paired that with a requirement for debt to be below 40% of GDP in each year of the forecast, his sustainable investment rule. The fact that debt is currently at 100% of GDP probably tells you all you need to know about the credibility of these frameworks over the last three decades.

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Financial stability faces fresh challenges as non-bank finance grows, argues Andrew Bailey, governor of the Bank of England. Drawing on Hyman Minsky's theories, he warns against complacency as memories of the 2008 crisis fade. His five key messages are: maintain a system-wide approach rather than fixating on individual risks; heed history's lessons; acknowledge the shift from traditional banking to non-bank finance; develop better surveillance tools; and rethink central banks' role as lenders of last resort to non-banks. While emergency facilities for non-banks may be necessary, they must be temporary to preserve money's unique status in the financial system. Read more here .

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What’s the latest in the Eurozone?

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Surveys carry a distinct whiff of stagnation.? Barely a week after the ECB trimmed interest rates 25bps, questions are already being asked about when, and how many, further cuts are needed to stimulate the Eurozone’s lacklustre economy. The bloc’s composite PMI stood virtually unchanged at 49.7 in October. At best that implies private sector activity is treading water, with the manufacturing sector still experiencing outright decline. Business confidence fell for the fifth month running to near a year-low. Flash estimates of consumer confidence dashed expectations too, showing sentiment nudging-up just 0.4ppts to -12.5; well below pre-Covid norms and incompatible with a jump in household spending anytime soon. Read more here and here .

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What’s the latest in US?

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Mixed signals from US surveys. The initial reading of the US PMI for October suggests business as usual for the US economy with continued steady growth. It also suggests inflationary pressure continue to wane – the composite measure of output prices dropped to a more than four-year low. And firms are more upbeat on the future compared to last month (although this has been volatile of late in the run-up to the election). Separately, the Beige Book, which is one of Fed Chair Powell’s preferred barometers of economic health, painted a softer picture. Economic activity was little changed in nearly all Fed districts since early September, with hurricane impacts reinforcing softness in other areas (including consumer caution). The “hard” data of measured output has contradicted that survey of late – will it continue to do so?? Read more here and here .

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What’s the latest in the Global Economy?

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October’s bi-annual IMF World Economic Outlook offers positive news for the UK. Growth is set to accelerate to 1.1% in 2024 and 1.5% in 2025, putting it amongst the fastest-growing economies in the G7. This is an upgrade from previous forecasts, driven by falling inflation rates and potential BoE interest rate cuts. While the UK’s strong growth puts it in the vanguard of advanced economies, a ￡40bn public finance gap looms in the lead-up to the Budget. Globally, the growth outlooks remain steady at a projected 3.2%, with the US and Asia thriving, while challenges remain in Europe and other regions. Read more here .

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Solar to become top electricity source globally by mid 2030s. The IEA’s latest world energy outlook forecasts solar to surpass nuclear, hydro, and wind by 2026, gas by 2031, and coal by 2033. Solar capacity is now 40 times larger than in 2010, with China driving 60% of new renewable installations. By 2030, wind generation is also projected to double, and clean energy will reduce coal use by 13%, marking a peak in energy-related emissions by 2025. Rising electricity demand—up 5% by 2030—is fuelled by clean-tech manufacturing, increased electric vehicle adoption, industrial electrification, and data centre expansion.?Read more here .