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Economic Update

Pound Holds Steady Amidst Economic Storm

8 minute read

19 February 2024


Last week was a tough data week for the UK economy. The average earnings, excluding bonuses, were up 5.8% year-on-year for the previous three months of 2023, UK inflation held at 4%, which is still double the target rate, and GDP for Q4 showed that the UK was in a technical recession in the second half of 2023. However, as inflation is behaving as expected and the Bank of England's interest rate forecasts are staying steady, the pound has remained relatively flat.

The week ahead promises further fallout from the two recent UK by-election results, with the Conservatives losing by a significant swing against them, which does not bode well for them in the UK general election due at some point in the latter part of this year.

In terms of data releases for the UK this week, this morning, we saw Rightmove's House Prices Index released, with house prices continuing to increase for a second month this year; this follows two months of decline at the end of 2023. According to February's data, house prices increased by 0.9%, which was below January's growth of 1.3% but could indicate a return to health for the housing market. Agreed sales were also 16% higher than the same month last year, and new listings and buyers' enquiries increased by 7%.

The rebound comes as mortgage lenders have already begun to cut rates in anticipation of the Bank of England heading towards a base rate cut towards the middle of the year. Two-year fixed rate mortgages have already seen a 0.37% drop since the start of 2024.

We'll see the latest data released from the UK's Manufacturing and Services Purchasing Manager's Index (PMI) on Thursday. Investors will be looking for indicators of whether the situation is improving in the UK following a long period of stagnant growth.

The Manufacturing PMI is expected to come in at 47.5, an increase from last month's reading of 47.0, and the Service PMI is expected at 54.5, just ahead of last month's 54.3. Most importantly, if the data comes in as expected, it could indicate the private services industry, which includes finance, insurance, communications and non-retail consumer companies, has an optimistic outlook for the year, after it posted the strongest reading for six months in January.


It's been a quiet few weeks for the euro with no key data releases recently; as such, any movement has been more dependent on the other side of the currency pair.

This week, we'll see the latest Euro Area Consumer Confidence, a leading indicator of consumer spending, released on Wednesday. Consumer Confidence in Europe hasn't been above the critical 0 threshold that indicates optimism since May 2018. It is expected to remain flat at -16 from last month when it came in below forecast.

We will also see Manufacturing and Services PMI data from France, Germany and the EU as a whole on Thursday. The data is expected to continue to creep upwards, with both France and Germany forecasting slight gains in last month's readings in both industries. As they are two of the biggest EU economies, their results likely contribute to the EU Manufacturing and Services PMI data, which is also forecasted to post increases from last month.

Across the board, however, the figures remain below 50, indicating continued industry contraction. This could negatively impact the euro as markets become more confident that the ECB will be the first to begin its rate-cutting cycle, which could happen as early as April.



The dollar had a good week last week after inflation came in higher than expected, leading to dollar strength. The US economy is currently experiencing solid economic growth, a hot labour market and sticky inflation, a combination that could make it difficult for the Federal Reserve to cut interest rates.

On Wednesday, we will get deeper insight into the Fed's thinking when the minutes from the last rate meeting are released. Markets will keep a close eye on the sentiment behind the decision, hoping it will shed further light on when the Fed will cut rates this year. At the time of writing, markets anticipate the first quarter-point cut in June, with an additional three cuts priced in for the rest of the year. This is down from an expectation of six cuts at the beginning of 2024.

The Fed has been flip-flopping slightly on its narrative around future rate cuts in the last couple of months. In December, Jay Powell's market-moving dovish comments seemed to open the door for cuts in 2024, but then the first meeting of the year policy markers seemed to push back on market expectations that the cuts would come sooner rather than later. And although possibility for further rate hikes was removed from the Fed's guidance following the January meeting, it did reiterate that the central bank would need "greater confidence" that inflation was on track to hit its 2% target before it considered making its first cut.

The US's Manufacturing and Services PMI data will also be released on Thursday. Markets are expecting a slight drop across both metrics, following high-than-expected readings in January. The Manufacturing PMI is expected to fall from 50.7 to 50.1 and the Services PMI from 52.5 to 52, although these readings are still crucially above the key 50 threshold, indicating industry growth.

This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory



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