Stabilising

After a slightly better than expected GDP reading earlier this month, last week’s data also offered cause for optimism, with flickers of life in UK retail sales and consumer confidence, buttressed by a jobs market that’s holding steady. While the property market continues to nimbly sidestep the weakness that’s afflicted other parts of the economy of late. But risks remain, particularly from stubborn price pressures and a weakening in hiring intentions. And the fiscal picture will be giving the Chancellor plenty to worry about.

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What’s the latest in the UK?

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A modest start to the year. There are some tentative signs of the economy bottoming out. February’s composite PMI was little changed at 50.5, pointing to negligible change in business activity. More encouragingly was the rise in the services gauge to 51.1, suggesting large parts of the UK economy may be coming through the worst of the slowdown. Not for the first time in recent years it’s the manufacturing sector that’s feeling the pain, with its PMI reading dropping to 46.4. Cost pressures remain acute to boot. The jobs outlook also remains concerning, with the employment index dropping to just 43.5 in February, on a par with the Covid-era. However, that weakness isn’t reflected in the official jobs data, which continue to paint a better picture.? Read more here.

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Inflation ticks up, but underlying momentum moderates. The UK consumer price index (CPI) rose to 3% in January, from 2.5% in December, exceeding both the consensus and MPC forecast of 2.8%. Nevertheless, services inflation, which the BoE is particularly focused on, rose less-than-expected to 5% (vs 5.2% MPC forecast). Similarly, underlying services inflation, which strips out volatile components, fell to 4.2% year-over-year, from 4.4% in December. Looking ahead, the PMI suggests that progress on services disinflation may have stalled, and upward inflationary pressure could be on the horizon for 2025 as NIC and tax hikes come into effect. As such, the BoE will continue to face the challenge of balancing the persistent inflation against weak economic growth. Read more here.

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Money worries. January's snapshot of the UK public finances will have given the Chancellor more to worry about. Tax receipts were higher than government spending, as is normally the case for January ahead of the self-assessment deadline, but that surplus was ￡5bn lower than the Office for Budget Responsibility had expected. Some caution is warranted; these figures are often revised up and lots of people pay slightly late with the cash coming in during February. Indeed, most of the gap to forecast is explained by a ￡4bn shortfall in self-assessed tax against the OBR's projections.? But with so little wriggle room left against the Chancellor's fiscal rules, even swings of this size could mean difficult choices ahead of the Spring Statement on 26th March. Read more here.

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The job market is holding steady, but challenges remain. Unemployment edged up to 4.4% in the three months to December, slightly above pre-pandemic levels, while job vacancies have nearly returned to ‘normal’, standing at 819,000. Wage growth remains strong, rising 5.9% year-on-year in Q4, and the number of payrolled employees continues to climb, up 21,000 on the quarter. Redundancies remain low, similar to rates seen in the late 2010s. While business surveys suggest weak employment growth and some job losses in early 2025, they may be overstating the risks. Overall, the labour market is showing resilience despite economic uncertainties. Read more here.?????

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Britain's property market shows clear signs of recovery. House prices rose 4.6% to ￡268K in the year to December 2024 as per the official ONS data - a dramatic turnaround from the 2.7% decline recorded twelve months earlier. Scotland led the rebound with a 6.9% increase, while prices in London remained flat. Meanwhile, the rental sector continued its upward trajectory, with private rents climbing 8.7% across the UK in January 2025. London tenants face the steepest increases, with rents surging 11.0% to reach ￡2,227 per month, while the national average hit ￡1,375 in England—highlighting the mounting pressure on renters nationwide. Read more here.

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Retail sales surge as consumer confidence begins to recover. UK retail sales rose 1.7% in January, driven by strong food sales growth, surpassing the consensus of 0.5%. Year-on-year growth reached 1.0%. Meanwhile, GfK’s consumer confidence index rose to -20 in February, reflecting improved sentiment, particularly in personal finances and major purchase intentions. Consumer confidence remains key to the economic growth this year. The combination of wage growth, recent interest rate cuts, and a stabilising job market is expected to lead to a recovery in confidence and support resilient consumer spending in the months ahead. Read more here and here.

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What’s the latest in the Global Economy?

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A stall in US economic activity echoes a UK and euro area song. The word Solstice comes from the Latin for “sun” and “stand still". And it seems the economic brilliance of the US has slowed this winter. Indeed, it may have almost stopped altogether with the US PMI ‘Flash’ estimate plunging from 52.7 in January to 50.4 in February. Beneath the headlines a sharp fall in activity in services (from 52.9 to 49.7) is a 27-month low and bears a warning of possible contraction. The survey suggests that a rapidly evolving federal policy backdrop is influencing sentiment. In contrast, and for all the high geopolitical drama, US manufacturing’s is looking none-too-shabby 51.6. Read more here.

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Eurozone PMI shows little relief from stagnation just yet. The composite PMI in the eurozone was stable at 50.2 in February, pointing to a sustained but marginal expansion in activity. While the manufacturing PMI rose to 47.3 from 46.6 in January, the services index fell to 50.7 in February, from 51.3 last month. All in all, it suggests that?eurozone private sector activity held broadly steady midway through Q1, as France posted a marked and accelerated reduction in business activity, offsetting a pickup in German activity and a “solid expansion in output” elsewhere. With orders still declining, businesses indicating that they are reducing workforces and possibly disruptive tariffs on the table, the outlook remains very uncertain in the coming months. Read more here