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Economists question whether the UK is heading for a recession as high interest rates and falling business activity start to weigh heavily on the economy
The pound-to-US-dollar rate touched its lowest point since March on Friday, as investors digested weaker-than-expected UK PMI data and the Bank of England’s latest policy decision.
The euro also extended its losses to over a six-month low against the US dollar off the back of disappointing PMI data and indications that the European Central Bank might halt its interest rate hikes.
The HCOB Eurozone composite Purchasing Managers’ Index rose to 47.1 in September, a slight increase from August’s 34-month low. The services PMI edged higher to 48.4 in September, marking the second consecutive contraction in services activity so far this year.
UK retail sales rose 0.4% in August, recovering from a 1.1% fall in July and falling slightly short of a 0.5% advance. Food shops trade rebounded 1.2% after falling 2.6% in the previous month.
S&P Global revealed that UK business activity in the private sector fell to 46.8 in September in flash PMIs, signalling the sharpest contraction in private sector activity since the financial crisis, excluding the Covid period.
Economists at KPMG have predicted that UK economic growth will slow sharply in the second half of 2023, as high interest rates and low productivity weigh on the economy.
This morning, investors will receive data from the Ifo on Germany’s business climate which is forecast to fall to 84.8 in September from 85.7 in August, which was the lowest reading since October 2022. Later this week, we’ll hear from the GfK on Germany’s consumer confidence, also expected to decline.
For US investors, this week’s focus will be on durable goods orders on Wednesday afternoon, GDP results on Thursday and personal spending data on Friday.
In Europe, the spotlight is on the CPI report for the Eurozone, Germany, France, Italy and Spain. Then on Friday, the Euro Area inflation rate is expected to slow for the fifth consecutive month to 4.5% in September.
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GBP: Economic data to watch for
This week, the United Kingdom will publish the final estimate of second-quarter GDP growth, alongside current account, CBI distributive trades, the Bank of England’s monetary indicators and the Nationwide house price index.
GBP/USD: the past year
EUR: Spain producer prices fall by 10%
Producer prices in Spain slid by a record 10% in August 2023, from a year ago, following an upwardly revised 8.6% drop in July. This marks the sixth consecutive month of producer decline.
USD: Business activity flatlines
The latest purchasing managers’ index flash survey from S&P Global showed a slight drop in US business activity in September. The overall output index fell to 50.1 last month from 50.2 in August.
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